Question 1

What is the net present value of the following sequence of annual cash flows at a discount rate of 16 percent APR?

Accepted Answer

A) $136,741.97 
B) $122,948.87 
C) $158,620.69 
D) $139,418.23 
A) $136,741.97 
B) $122,948.87 
C) $158,620.69 
D) $139,418.23

Question 2

An equal-payment home mortgage is an example of an annuity.

Accepted Answer

A) True 
 B)False

Question 3

The one-year discount factor, at an interest rate of 100 percent per year, is:

Accepted Answer

A) 1.50. 
B) 0.50. 
C) 0.25. 
D) 1.00. 
A) 1.50. 
B) 0.50. 
C) 0.25. 
D) 1.00.

Question 4

The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by: [C1/(r - g)], where r > g.

Accepted Answer

A) True 
 B)False

Question 5

What is the eight-year present value annuity factor at a discount rate of 11 percent?

Accepted Answer

A) 5.7122 
B) 11.8594 
C) 5.1461 
D) 6.9158 
A) 5.7122 
B) 11.8594 
C) 5.1461 
D) 6.9158

Question 6

What is the net present value (NPV)of the following sequence of cash flows at a discount rate of 9 percent?

Accepted Answer

A) $122,431.81 
B) $200,000.00 
C) $155,950.68 
D) $177,483.77 
A) $122,431.81 
B) $200,000.00 
C) $155,950.68 
D) $177,483.77

Question 7

If the annual interest rate is 12 percent, what is the two-year discount factor?

Accepted Answer

A) 0.7972 
B) 0.8929 
C) 1.2544 
D) 0.8065 
A) 0.7972 
B) 0.8929 
C) 1.2544 
D) 0.8065

Question 8

State the rate of return rule.

Accepted Answer

Invest as long as the rate of

Question 9

If the present value annuity factor for 10 years at 10 percent interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

Accepted Answer

A) 6.1446 
B) 7.3800 
C) 6.7590 
D) 5.7321 
A) 6.1446 
B) 7.3800 
C) 6.7590 
D) 5.7321

Question 10

A perpetuity is defined as a sequence of:

Accepted Answer

A) equal cash flows occurring at equal intervals of time for a specific number of periods. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specific number of periods. 
A) equal cash flows occurring at equal intervals of time for a specific number of periods. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specific number of periods.

Question 11

If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

Accepted Answer

A) $1.000 
B) $1.610 
C) $1.621 
D) Not enough information is given to solve the problem. 
A) $1.000 
B) $1.610 
C) $1.621 
D) Not enough information is given to solve the problem.

Question 12

Present value is defined as:

Accepted Answer

A) future cash flows discounted to the present by an appropriate discount rate. 
B) inverse of future cash flows. 
C) present cash flows compounded into the future. 
D) future cash flows multiplied by the factor (1 + r)t. 
A) future cash flows discounted to the present by an appropriate discount rate. 
B) inverse of future cash flows. 
C) present cash flows compounded into the future. 
D) future cash flows multiplied by the factor (1 + r)t.

Question 13

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000. What is the NPV of the project at a discount rate of 20 percent?

Accepted Answer

A) $176,000 
B) $80,000 
C) $0 (zero) 
D) $64,000 
A) $176,000 
B) $80,000 
C) $0 (zero) 
D) $64,000

Question 14

The managers of a firm can maximize stockholder wealth by:

Accepted Answer

A) taking all projects with positive NPVs. 
B) taking all projects with NPVs greater than the cost of investment. 
C) taking all projects with NPVs greater than the present value of cash flows. 
D) taking only the highest NPV project each year. 
A) taking all projects with positive NPVs. 
B) taking all projects with NPVs greater than the cost of investment. 
C) taking all projects with NPVs greater than the present value of cash flows. 
D) taking only the highest NPV project each year.

Question 15

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income, if the annual interest rate is 9 percent per year? (Assume that the payments start on the day of your retirement.)

Accepted Answer

A) $736,693.47 
B) $802,995.88 
C) $2,043,750.21 
D) $1,427,831.93 
A) $736,693.47 
B) $802,995.88 
C) $2,043,750.21 
D) $1,427,831.93

Question 16

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

Accepted Answer

A) Future value of a single payment 
B) Future value of an annuity 
C) Present value of an annuity 
D) Present value of a perpetuity 
A) Future value of a single payment 
B) Future value of an annuity 
C) Present value of an annuity 
D) Present value of a perpetuity

Question 17

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 18

Intuitively explain the concept of present value.

Accepted Answer

If you have $100 today, you can invest i

Question 19

Generally, one should accept investments that offer rates of return in excess of their opportunity costs of capital.

Accepted Answer

A) True 
 B)False

Question 20

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

Accepted Answer

A) $250,000 
B) $50,000 
C) $200,000 
D) -$50,000 
A) $250,000 
B) $50,000 
C) $200,000 
D) -$50,000

Exam 2: How to Calculate Present Values

What is the net present value of the following sequence of annual cash flows at a discount rate of 16 percent APR?

An equal-payment home mortgage is an example of an annuity.

The one-year discount factor, at an interest rate of 100 percent per year, is:

The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by: [C1/(r - g)], where r > g.

What is the eight-year present value annuity factor at a discount rate of 11 percent?

What is the net present value (NPV)of the following sequence of cash flows at a discount rate of 9 percent?

If the annual interest rate is 12 percent, what is the two-year discount factor?

State the rate of return rule.

If the present value annuity factor for 10 years at 10 percent interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

A perpetuity is defined as a sequence of:

If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

Present value is defined as:

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000. What is the NPV of the project at a discount rate of 20 percent?

The managers of a firm can maximize stockholder wealth by:

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income, if the annual interest rate is 9 percent per year? (Assume that the payments start on the day of your retirement.)

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

Intuitively explain the concept of present value.

Generally, one should accept investments that offer rates of return in excess of their opportunity costs of capital.

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

Introduction to Corporate Finance

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

The present value of a growing perpetuity, with cash flow C₁ occurring one year from now, is given by: [C₁/(r - g)], where r > g.