The Common Stock of Mercury Motors Is Selling for $43

question 426

Multiple Choice

The common stock of Mercury Motors is selling for $43.90 a share. Treasury bills are currently yielding 4.5 percent. What is the current value of a one-year call option on Mercury Motors stock if
The exercise price is $37.50 and you assume the option will finish in the money?

• A) $6.12
• B) $6.40
• C) $6.69
• D) $7.67
• E) $8.01

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Definitions:

Direct Labor-Hours

The aggregate of direct labor hours required for manufacturing a good or rendering a service.

Variable Overhead

Indirect production costs that vary with the level of output, including supplies and utilities necessary for production but not directly tied to specific products.

Efficiency Variance

The difference between the actual amount of resources used in production and the amount that should have been used, reflecting efficiency in resource usage.

Direct Materials

Raw materials that are directly used in the production of a product, easily traceable to the product itself.