Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
3rd Edition
ISBN: 9780133507676
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 3, Problem 7P
Bubba is a shrimp farmer. In an ironic twist, Bubba is allergic to shellfish, so he can- not eat any shrimp. Each day he has a one-ton supply of shrimp. The market price of shrimp is $10,000 per ton.
a. What is the value of a ton of shrimp to him?
b. Would this value change if he were not allergic to shrimp? Why or why not?
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Brett has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut orchard next door has offered to swap this year's crop with him. Assume he produces 1043 tons of almonds and his neighbor produces 778 tons of walnuts. If the market price of almonds is $102 per ton and the market price of walnuts is 118 per ton:
a. Should he make the exchange?
b. Does it matter whether he prefers almonds or walnuts? Why or why not?
**round to the nearest dollar**
Andy owns a Candy factory with noisy machines which disturb his neighbor Barb. Andy profits from running his noisy factory by ∏A =100,000. Producing candy without making noise would be costly for Andy – if Andy were forced to run his factory silently, the profits of the factory would fall by 60,000 so he would only make a profit of 40,000. Otherwise, Andy could just shut down his factory entirely and earn nothing. Barb gets a payoff of ∏B =70,000 from a quiet neighborhood. She will get a payoff of zero (∏B =0) if she has to endure Andy's noise. Barb could wear earplugs, but that discomfort and inconvenience would leave her with a payoff of only ∏B =20,000.
Suppose Andy is now allowed to be noisy if he chooses, but Barb has a liability right to collect damages for any harms she bears from the noise. Note that if she has earplugs, she does not bear any harms from the noise, so she will only be paid if Andy operates noisily and she does not wear earplugs (she is not paid any damages for…
Brett has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut orchard next door has offered to swap this
year's crop with him. Assume he produces 1,048 tons of almonds and his neighbor produces 762 tons of walnuts. If the market price of almonds is $101 per
ton and the market price of walnuts is $118 per ton:
a. Should he make the exchange?
b. Does it matter whether he prefers almonds or walnuts? Why or why not?
C
Chapter 3 Solutions
Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
Ch. 3 - Prob. 1CCCh. 3 - If crude oil trades in a competitive market, would...Ch. 3 - How do investor's profit motives keep competitive...Ch. 3 - How do we determine whether a decision increases...Ch. 3 - How is an interest rate like a price?Ch. 3 - Is the value today of money to be received in one...Ch. 3 - Prob. 7CCCh. 3 - Prob. 8CCCh. 3 - What makes an investment decision a good one?Ch. 3 - How important are our personal preferences in...
Ch. 3 - Why are market prices useful to a financial...Ch. 3 - Why is arbitrage important to competitive market...Ch. 3 - Prob. 5CTCh. 3 - Can we directly compare dollar amounts received at...Ch. 3 - Prob. 7CTCh. 3 - What is a discount rate?Ch. 3 - What is compound interest?Ch. 3 - What is the intuition behind the geometric growth...Ch. 3 - Honda Motor Company is considering offering a...Ch. 3 - Prob. 2PCh. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - Prob. 5PCh. 3 - Prob. 6PCh. 3 - Bubba is a shrimp farmer. In an ironic twist,...Ch. 3 - Brett has almond orchards, but he is sick of...Ch. 3 - You have $100 and a bank is offering 5% interest...Ch. 3 - Prob. 10PCh. 3 - A friend asks to borrow $55 from you and in return...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - Prob. 16PCh. 3 - Prob. 17PCh. 3 - Prob. 18PCh. 3 - Prob. 19PCh. 3 - Prob. 20PCh. 3 - Prob. 21PCh. 3 - Prob. 22PCh. 3 - 26. Your cousin is currently 12 years old. She...Ch. 3 - Prob. 24PCh. 3 - 29. You are planning to invest $5000 in an account...Ch. 3 - Prob. 26P
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