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Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $101,000 apiece. The sequesters last for only 1 year before becoming saturated.

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Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $101,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government.

a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $120,190 for sure. How would you determine the opportunity cost of capital for this investment?

b-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from investments on that exchange have been about 24%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case?

b-2.If the expected return on the investment is still 19%, but instead depends on the price of carbon (so that it is no longer risk-free), then is the purchase of additional sequesters an attractive investment for the firm?

Which of the following statements always apply to corporations? You may select more than one answer.

  • Unlimited Liability
  • Limited Life
  • Ownership can be transffered without affecting operations
  • Managers can be fired with no effect on ownership

Which of the following are correct descriptions of large corporations? (You may select more than one answer.

  • Managers no longer have the incentive to act in their own interests.
  • The corporation survives even if managers are dismissed.
  • Shareholders can sell their holdings without disrupting the business.
  • Corporations, unlike sole proprietorships, do not pay tax; instead, shareholders are taxed on any dividends they receive.

Which of the following statements more accurately describes the treasurer than the controller? (You may select more than one answer.

  • Monitors capital expenditures to make sure that they are not misappropriated
  • Responsible for investing the firm's spare cash
  • Responsible for arranging any issue of common stock
  • Responsible for the company's tax affairs

Here is a simplified balance sheet for Locust Farming:

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