16. The present value of a future amount can be calculated with the equation ________.
(a) PV = FV(1 + i)n (b) PV = FV(1 + i)(n)
(c) PV = FV/(1 + i)n [NOTE: this should be formatted as a stacked fraction]
(d) PV = FV/(1 + i)(n) [NOTE: this should be formatted as a stacked fraction]
Answer: (c)
17. To compute the future value of a present amount use the compound amount factor defined as
________.
(a) FV = PV(1 + i)n (b) FV = PV(1 + i)(n)
(c) FV = PV/(1 + i)n [NOTE: this should be formatted as a stacked fraction]
(d) FV = PV/(1 + i)(n) [NOTE: this should be formatted as a stacked fraction]
Answer: (a)
18. The earnings of BGB Computers have grown from $3.20 to $6.90 in 6 years. Determine the
annual compound rate.
(a) 1.14% (b) 13.7% (c) 15.6% (d) 115.6%
Answer: (b)
19. In five years you intend to go to graduate school. For each of your four years in graduate
school, you need to have a fund that will provide $25,000 per year at the beginning of each year. If the interest rate is 9% throughout, how much must you put in the fund today?
(a) $64,996 (b) $57,379 (c) $50,184 (d) $16,249
Answer: (b)
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20. As part of your new job at CyberInc. the company is providing you with a new Jeep. Your
firm will lease this $34,000 Jeep for you. The terms of the lease are seven annual payments at an interest rate of 10%, which will fully amortize the cost of the car. What is the annual lease payment?
(a) $6,984.39 (b) $5,342.86 (c) $4,857.14 (d) $3,584.00
Answer: (a)
21. A rule of thumb with using the internal rate of return is to invest in a project if the IRR is
________ the opportunity cost of capital.
(a) greater than (b) less than
(c) less than or equal to (d) one-half of
Answer: (a)
22. When considering the timeframe of an investment, a rule followed by some is to choose the
investment with ______ payback period.
(a) the longest (b) the shortest (c) no
(d) an infinite
Answer: (b)
23. A major problem with using the internal rate of return rule is ________.
(a) there may be multiple cash outflows and multiple cash inflows (b) the internal rate of return may not exist
(c) the internal rate of return may not be unique (d) all of the above
Answer: (d)
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24. The NPV is the difference between the ________ value of all ________ cash inflows
minus the ________ value of all current and future cash outflows.
(a) future; present; present (b) present; future; present (c) present; present; future (d) present; future; future
Answer: (b)
25. When considering effective interest rates, as the compounding frequency increases, the
effective annual rate gets ________ and ________ but approaches ________.
(a) larger; larger; a limit (b) smaller; smaller; a limit (c) larger; larger; infinity (d) smaller; smaller; infinity
Answer: (a)
26. In 10 years you wish to own your business. How much will you have in your bank
account at the end of 10 years if you deposit $300 each quarter (assume end of the period deposits)? Assume the account is paying an interest rate of 12% compounded quarterly.
(a) $20,220 (b) $21,060 (c) $21,626 (d) $22,620
Answer: (d)
27. The director of marketing for CyberProducts Inc. plans to unleash a media blitz that is
expected to cost $4.7 million three years from today. How much cash should she set aside today to pay for this if the current interest rate is 11%?
(a) $6.43 million (b) $4.23 million (c) $3.62 million (d) $3.44 million Answer: (d)
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28. If you purchased a $10,000 certificate of deposit today with an APR of 12%, with monthly
compounding, what would be the CD worth when it matures in 6 years? (a) $56,340 (b) $20,468 (c) $19,738 (d) $5,066 Answer: (b)
29. The manufacturing manager of CyberProducts Inc. estimates that she can save the company
$16,000 cash per year over the next 8 years by implementing a recycling plan. What is the value of the savings today if the appropriate interest rate for the firm is 9%? Assume cash flows occur at the end of the year. (a) $64,240 (b) $88,557 (c) $96,527 (d) $128,000 Answer: (b)
30. If the exchange rate between the U.S. dollar and the French Franc is $0.17 per French Franc,
the dollar interest rate is 5.5% per year, and the French Franc interest rate is 4.5% per year, what is the \now?
a) $0.172 per FF b) $0.179 per FF c) $5.827 per FF d) $5.882 per FF
Answer: (a)
31. In any time value of money calculation, the cash flows and the interest rate must be
denominated ________.
a) in the same currency b) in different currencies
c) in terms of a third currency d) in terms of the ECU
Answer: (a)
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