MINI-CASE The Jones Family, Incorporated Scene: It is early evening in the summer of 2014, in an ordinary family room in Man The furniture, with old copies of The Wall Street Journal and the Financial Times window reveals a distant view of lights on the Hudson River. John Jones sits at a nal, glumly sipping a glass of chardonnay and putting on a carry trade in Japanese yen Autographed photos of Alan Greenspan and George Soros are prominently displayed. A arou computer the Internet. His wife Marsha enters. nd Marsha: Hi, honey, Glad to be home. Lousy day on the trading floor,though Dulsville. No vo ume. But I did manage to hedge next year's production from our copper mine. l co I couldn't get a te on the right package of futures contracts, so I arranged a commodity swap. John doesn't reply. Marsha: John, what's wrong? Have you been selling yen again? That's been a losing trade for John: Well, yes. I shouldn't have gone to Goldman Sachs's foreign exchange brunch. But I've ed got to get out of the house somehow. I'm cooped up here all day calculating covariances and efficient risk-return trade-offs while you're out trading commodity futures. You get all the glamour and excitement. Marsha: Don't worry, dear, it will be over soon. We only recalculate our most efficient commorn stock portfolio once a quarter. Then you can go back to leveraged leases. John: You trade, and I do all the worrying. Now there's a rumor that our leasing company is going to get a hostile takeover bid. I knew the debt ratio was too low, and you forgot to put on the poison pill. And now you've made a negative-NPV investment! Marsha: What investment? John: That wildcat oil well. Another well in that old Sourdough field. It's going to cost $5 million! Is there any oil down there? Marsha: That Sourdough field has been good to us, John. Where do you think we got the capital for your yen trades? I bet we'll find oil. Our geologists say there's only a 30% chance of a dry hole John: Even if we hit oil, I bet we'll only get 75 barrels of crude oil per day. Marsha: That's 75 barrels day in, day out. There are 365 days in a year, dear. John and Marsha's teenage son Johnny bursts into the room. Johnny: Hi, Dad! Hi, Mom! Guess what? I've made the junior varsity derivatives team! That means I can go on the field trip to the Chicago Board Options Exchange. (Pauses) What's wrong? John: Your mother has made another negative-NPV investment. A wildcat oil well, way up on the North Slope of Alaska. Johnny: That's OK, Dad. Mom told me about it. I was going to do an NPV calculation yesterday but I had to finish calculating the junk-bond default probabilities for my corporate finance homework. (Grabs a financial calculator from his backpack.) Let's see: 75 barrels a day times 365 days per year times $100 per barrel when delivered in Los Angeles.. . that's $2.7 million per year MINI-CASE The Jones Family, Incorporated Scene: It is early evening in the summer of 2014, in an ordinary family room in Man The furniture, with old copies of The Wall Street Journal and the Financial Times window reveals a distant view of lights on the Hudson River. John Jones sits at a nal, glumly sipping a glass of chardonnay and putting on a carry trade in Japanese yen Autographed photos of Alan Greenspan and George Soros are prominently displayed. A arou computer the Internet. His wife Marsha enters. nd Marsha: Hi, honey, Glad to be home. Lousy day on the trading floor,though Dulsville. No vo ume. But I did manage to hedge next year's production from our copper mine. l co I couldn't get a te on the right package of futures contracts, so I arranged a commodity swap. John doesn't reply. Marsha: John, what's wrong? Have you been selling yen again? That's been a losing trade for John: Well, yes. I shouldn't have gone to Goldman Sachs's foreign exchange brunch. But I've ed got to get out of the house somehow. I'm cooped up here all day calculating covariances and efficient risk-return trade-offs while you're out trading commodity futures. You get all the glamour and excitement. Marsha: Don't worry, dear, it will be over soon. We only recalculate our most efficient commorn stock portfolio once a quarter. Then you can go back to leveraged leases. John: You trade, and I do all the worrying. Now there's a rumor that our leasing company is going to get a hostile takeover bid. I knew the debt ratio was too low, and you forgot to put on the poison pill. And now you've made a negative-NPV investment! Marsha: What investment? John: That wildcat oil well. Another well in that old Sourdough field. It's going to cost $5 million! Is there any oil down there? Marsha: That Sourdough field has been good to us, John. Where do you think we got the capital for your yen trades? I bet we'll find oil. Our geologists say there's only a 30% chance of a dry hole John: Even if we hit oil, I bet we'll only get 75 barrels of crude oil per day. Marsha: That's 75 barrels day in, day out. There are 365 days in a year, dear. John and Marsha's teenage son Johnny bursts into the room. Johnny: Hi, Dad! Hi, Mom! Guess what? I've made the junior varsity derivatives team! That means I can go on the field trip to the Chicago Board Options Exchange. (Pauses) What's wrong? John: Your mother has made another negative-NPV investment. A wildcat oil well, way up on the North Slope of Alaska. Johnny: That's OK, Dad. Mom told me about it. I was going to do an NPV calculation yesterday but I had to finish calculating the junk-bond default probabilities for my corporate finance homework. (Grabs a financial calculator from his backpack.) Let's see: 75 barrels a day times 365 days per year times $100 per barrel when delivered in Los Angeles.. . that's $2.7 million per year