Unformatted text preview: opportunity, or $18,000 $10,500 $25,000 $3500 today. Because the value is
positive, we should take it. This value depends only on the current market prices for oil and
copper. If we do not need all of the oil and copper, we can sell the excess at current market
prices. Even if we thought the value of oil or copper was about to plummet, the value of this
investment would be unchanged. (We can always exchange them for dollars immediately at
the current market prices.) ◗ Evaluate
Since we are transacting today, only the current prices in a competitive market matter.
Our own use for or opinion about the future prospects of oil or copper does not alter the
value of the decision today. This decision is good for the firm, and will increase its value
by $3500. Concept
Check 5. How should we determine the value of a good?
6. If crude oil trades in a competitive market, would an oil refiner that has a use for the oil
value it differently than another investor would? 3.4 The Time Value of Money and Interest Rates
For most financial dec...
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- Spring '07