9780321818171_berk_ch03

This value depends only on the current market prices

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

Ask a homework question - tutors are online