Ray's Jams Inc

question 1

Multiple Choice

Ray's Jams Inc.was just established with an investment of $5 million into stereo equipment.Ray expects his company to generate $800,000 a year for the next 200 years.If Ray's cost of capital is 15%, find the market value and book value of his company.(Use values in millions)

• A)Market value = $9.0 million; book value = $5.0 million
• B)Market value = $5.0 million; book value = $5.3 million
• C)Market value = $5.33 million; book value = $5.0 million
• D)Market value = $7.0 million; book value = $5.0 million

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Definitions:

Excludable

A characteristic of a good or service that allows its owner to prevent others from using it without paying for it.

Free Rider

A person who receives the benefit of a good but avoids paying for it

Free-Rider

An individual who benefits from resources, goods, or services without paying for the cost of the benefit.

Market Forces

The economic factors affecting the price, demand, and availability of goods and services in a free market, primarily driven by supply and demand.