Question 1

What is the present value of the following cash flow at a discount rate of 9%?

Accepted Answer

A)  $372,431.81 
B)  $450,000 
C)  $405,950.68 
D)  None of the above 
A)  $372,431.81 
B)  $450,000 
C)  $405,950.68 
D)  None of the above

Question 2

The present value formula for one period cash flow is:

Accepted Answer

A)  PV = C1(1 + r) 
B)  PV = C1/(1 + r) 
C)  PV = C1/r 
D)  None of the above 
A)  PV = C1(1 + r) 
B)  PV = C1/(1 + r) 
C)  PV = C1/r 
D)  None of the above

Question 3

The present value of a $100 per year perpetuity at 10% per year interest rate is $1000. What would be the present value if the payments were compounded continuously?

Accepted Answer

A)  $1000.00 
B)  $1049.21 
C)  $1024.40 
D)  None of the above 
A)  $1000.00 
B)  $1049.21 
C)  $1024.40 
D)  None of the above

Question 4

What is the present value of $1000 per year annuity for five years at an interest rate of
12%?

Accepted Answer

A)  $6,352.85 
B)  $3,604.78 
C)  $567.43 
D)  None of the above 
A)  $6,352.85 
B)  $3,604.78 
C)  $567.43 
D)  None of the above

Question 5

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)  None of the above 
A)  Future value of a single payment 
B)  Future value of an annuity 
C)  Present value of an annuity 
D)  None of the above

Question 6

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

Accepted Answer

A)  $122,431.81 
B)  $200,000 
C)  $155,950.68 
D)  None of the above 
A)  $122,431.81 
B)  $200,000 
C)  $155,950.68 
D)  None of the above

Question 7

Compound interest assumes that you are reinvesting the interest payments at the rate of return.

Accepted Answer

A) True 
 B)False

Question 8

If you receive $1,000 payment at the end each year for the next five years, what type of cash flow do you have?

Accepted Answer

A)  Uneven cash flow stream 
B)  An annuity 
C)  An annuity due 
D)  None of the above 
A)  Uneven cash flow stream 
B)  An annuity 
C)  An annuity due 
D)  None of the above

Question 9

If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is:

Accepted Answer

A)  $240 
B)  $160 
C)  $80 
D)  $400 
A)  $240 
B)  $160 
C)  $80 
D)  $400

Question 10

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

Accepted Answer

A)  $176,000 
B)  $80,000 
C)  $0 (zero) 
D)  None of the above 
A)  $176,000 
B)  $80,000 
C)  $0 (zero) 
D)  None of the above

Question 11

The present value of $100 expected in two years from today at a discount rate of 6% is:

Accepted Answer

A)  $116.64 
B)  $108.00 
C)  $100.00 
D)  $89.00 
A)  $116.64 
B)  $108.00 
C)  $100.00 
D)  $89.00

Question 12

Intuitively explain the concept of the present value.

Accepted Answer

If you have $100 today, you can invest i

Question 13

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)  None of the above 
A)  $250,000 
B)  $50,000 
C)  $200,000 
D)  None of the above

Question 14

Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of 25% per year is:

Accepted Answer

A)  $80,000 
B)  $125,000 
C)  $100,000 
D)  None of the above 
A)  $80,000 
B)  $125,000 
C)  $100,000 
D)  None of the above

Question 15

Present Value is defined as:

Accepted Answer

A)  Future cash flows discounted to the present at an appropriate discount rate 
B)  Inverse of future cash flows 
C)  Present cash flow compounded into the future 
D)  None of the above 
A)  Future cash flows discounted to the present at an appropriate discount rate 
B)  Inverse of future cash flows 
C)  Present cash flow compounded into the future 
D)  None of the above

Question 16

An annuity is an asset that pays a fixed sum each year for a specified number of years.

Accepted Answer

A) True 
 B)False

Question 17

Net present value is found by subtracting the required investment from the present value of future cash flows.

Accepted Answer

A) True 
 B)False

Question 18

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 the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)?

Accepted Answer

A)  $736,693.47 
B)  $802,995.88 
C)  $2,043,750 
D)  None of the above 
A)  $736,693.47 
B)  $802,995.88 
C)  $2,043,750 
D)  None of the above

Question 19

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

Accepted Answer

A)  1.5 
B)  0.5 
C)  0.25 
D)  None of the above 
A)  1.5 
B)  0.5 
C)  0.25 
D)  None of the above

Question 20

State the "net present value rule."

Accepted Answer

Invest in projects with positi

Exam 2: How to Calculate Present Values

What is the present value of the following cash flow at a discount rate of 9%?

The present value formula for one period cash flow is:

The present value of a $100 per year perpetuity at 10% per year interest rate is $1000. What would be the present value if the payments were compounded continuously?

What is the present value of $1000 per year annuity for five years at an interest rate of 12%?

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?

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

Compound interest assumes that you are reinvesting the interest payments at the rate of return.

If you receive $1,000 payment at the end each year for the next five years, what type of cash flow do you have?

If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is:

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

The present value of $100 expected in two years from today at a discount rate of 6% is:

Intuitively explain the concept of the present value.

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?

Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of 25% per year is:

Present Value is defined as:

An annuity is an asset that pays a fixed sum each year for a specified number of years.

Net present value is found by subtracting the required investment from the present value of future cash flows.

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 the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)?

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

State the "net present value rule."

Goals and Governance of the Firm

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

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

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

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Governance and Corporate Control Around the World

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