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Unformatted text preview: , we first need to quantify their values in equivalent terms—cash today.
Consider the silver. What is its cash value today? Suppose silver can be bought and
sold for a current market price of $25 per ounce. Then the 200 ounces of silver we give
up has a cash value of1
(200 ounces of silver) ($25/ounce of silver) $5000
If the current market price for gold is $1300 per ounce, then for the 10 ounces of
gold we receive a cash value of
(10 ounces of gold) ($1300/ounce of gold) $13,000
We have now quantified the decision. The jeweller’s opportunity has a benefit of
$13,000 and a cost of $5000. The net benefit of the decision is $13,000 $5000 $8000
today. The net value of the decision is positive, so by accepting the trade, the jewellery
firm will be richer by $8000. E X AMPLE 3 .1 Problem
Suppose you work as a customer account manager for an importer of frozen seafood. A customer is
willing to purchase 300 kilograms of frozen shrimp today for a total price of $1500, including delivery. You can buy frozen shrimp on the wholesale market f...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07