Question 1

The present value of an amount to be received in five years is exactly twice as large as the present value of an equal amount to be received in ten years.

Accepted Answer

A) True 
 B)False  False

Question 2

The present value of a cash flow will never be greater than the future dollar amount of the cash flow.

Accepted Answer

A) True 
 B)False  True

Question 3

The present value of a cash flow increases as it moves further into the future.

Accepted Answer

A) True 
 B)False  False

Question 4

(Ignore income taxes in this problem.)You have deposited $24,764 in a special account that has a guaranteed rate of return.If you withdraw $4,300 at the end of each year for 9 years,you will completely exhaust the balance in the account.The guaranteed rate of return is closest to:

Accepted Answer

A)  6% 
B)  10% 
C)  17% 
D)  56% 
A)  6% 
B)  10% 
C)  17% 
D)  56%

Question 5

(Ignore income taxes in this problem.)How much would you have to invest today in the bank at an interest rate of 8% to have an annuity of $4,800 per year for 7 years,with nothing left in the bank at the end of the 7 years? Select the amount below that is closest to your answer.

Accepted Answer

A)  $33,600 
B)  $2,798 
C)  $24,989 
D)  $31,111 
A)  $33,600 
B)  $2,798 
C)  $24,989 
D)  $31,111

Question 6

(Ignore income taxes in this problem.)In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return?

Accepted Answer

A)  $12,978 
B)  $8,100 
C)  $13,290 
D)  $32,054 
A)  $12,978 
B)  $8,100 
C)  $13,290 
D)  $32,054

Question 7

(Ignore income taxes in this problem.)You have deposited $7,620 in a special account that has a guaranteed rate of return of 19% per year.If you are willing to completely exhaust the account,what is the maximum amount that you could withdraw at the end of each of the next 7 years? Select the amount below that is closest to your answer.

Accepted Answer

A)  $1,295 
B)  $2,056 
C)  $2,219 
D)  $1,089 
A)  $1,295 
B)  $2,056 
C)  $2,219 
D)  $1,089

Question 8

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

Accepted Answer

A)  greater than under a 10% discount rate. 
B)  less than under a 10% discount rate. 
C)  equal to that under a 10% discount rate. 
D)  sometimes greater than under a 10% discount rate and sometimes less; it depends on R. 
A)  greater than under a 10% discount rate. 
B)  less than under a 10% discount rate. 
C)  equal to that under a 10% discount rate. 
D)  sometimes greater than under a 10% discount rate and sometimes less; it depends on R.

Question 9

(Ignore income taxes in this problem.)A company wants to have $20,000 at the end of a ten-year period by investing a single sum now.How much needs to be invested in order to have the desired sum in ten years,if the money can be invested at 12%?

Accepted Answer

A)  $3,254.68 
B)  $3,539.82 
C)  $6,440 
D)  $7,720 
A)  $3,254.68 
B)  $3,539.82 
C)  $6,440 
D)  $7,720

Question 10

(Ignore income taxes in this problem.)Domebo Corporation has entered into a 7 year lease for a piece of equipment.The annual payment under the lease will be $3,400,with payments being made at the beginning of each year.If the discount rate is 14%,the present value of the lease payments is closest to:

Accepted Answer

A)  $9,511 
B)  $16,621 
C)  $20,877 
D)  $23,800 
A)  $9,511 
B)  $16,621 
C)  $20,877 
D)  $23,800

Question 11

(Ignore income taxes in this problem.)A company wants to have $40,000 at the end of a five-year period through investment of a single sum now.How much needs to be invested in order to have the desired sum in five years,if the money can be invested at 10%:

Accepted Answer

A)  $10,551 
B)  $8,000 
C)  $24,840 
D)  $12,882 
A)  $10,551 
B)  $8,000 
C)  $24,840 
D)  $12,882

Question 12

The present value of a given future cash flow will decrease as the discount rate decreases.

Accepted Answer

A) True 
 B)False

Question 13

(Ignore income taxes in this problem.)At an interest rate of 14%,approximately how much would you need to invest today if you wanted to have $2,000,000 in 10 years?

Accepted Answer

A)  $383,436 
B)  $540,000 
C)  $740,741 
D)  $1,043,200 
A)  $383,436 
B)  $540,000 
C)  $740,741 
D)  $1,043,200

Question 14

An increase in the discount rate:

Accepted Answer

A)  will increase the present value of future cash flows. 
B)  will have no effect on net present value. 
C)  will reduce the present value of future cash flows. 
D)  is one method of compensating for reduced risk. 
A)  will increase the present value of future cash flows. 
B)  will have no effect on net present value. 
C)  will reduce the present value of future cash flows. 
D)  is one method of compensating for reduced risk.

Question 15

The higher the discount rate,the higher the present value of a given future cash flow.

Accepted Answer

A) True 
 B)False

Question 16

(Ignore income taxes in this problem.)Suddeth Corporation has entered into a 6 year lease for a building it will use as a warehouse.The annual payment under the lease will be $2,468.The first payment will be at the end of the current year and all subsequent payments will be made at year-ends.If the discount rate is 5%,the present value of the lease payments is closest to:

Accepted Answer

A)  $12,528 
B)  $14,103 
C)  $14,808 
D)  $11,050 
A)  $12,528 
B)  $14,103 
C)  $14,808 
D)  $11,050

Exam 29: The Concept of Present Value

The present value of an amount to be received in five years is exactly twice as large as the present value of an equal amount to be received in ten years.

The present value of a cash flow will never be greater than the future dollar amount of the cash flow.

The present value of a cash flow increases as it moves further into the future.

(Ignore income taxes in this problem.)You have deposited $24,764 in a special account that has a guaranteed rate of return.If you withdraw $4,300 at the end of each year for 9 years,you will completely exhaust the balance in the account.The guaranteed rate of return is closest to:

(Ignore income taxes in this problem.)How much would you have to invest today in the bank at an interest rate of 8% to have an annuity of $4,800 per year for 7 years,with nothing left in the bank at the end of the 7 years? Select the amount below that is closest to your answer.

(Ignore income taxes in this problem.)In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return?

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

(Ignore income taxes in this problem.)A company wants to have $20,000 at the end of a ten-year period by investing a single sum now.How much needs to be invested in order to have the desired sum in ten years,if the money can be invested at 12%?

(Ignore income taxes in this problem.)A company wants to have $40,000 at the end of a five-year period through investment of a single sum now.How much needs to be invested in order to have the desired sum in five years,if the money can be invested at 10%:

The present value of a given future cash flow will decrease as the discount rate decreases.

(Ignore income taxes in this problem.)At an interest rate of 14%,approximately how much would you need to invest today if you wanted to have $2,000,000 in 10 years?

An increase in the discount rate:

The higher the discount rate,the higher the present value of a given future cash flow.

Managerial Accounting and Cost Concepts

Job-Order Costing: Calculating Unit Production Costs

Job-Order Costing: Cost Flows and External Reporting

Process Costing

Cost-Volume-Profit Relationships

Variable Costing and Segment Reporting: Tools for Management

Super-Variable Costing

Master Budgeting

Flexible Budgets and Performance Analysis

Standard Costs and Variances

Performance Measurement in Decentralized Organizations

Differential Analysis: The Key to Decision Making

Capital Budgeting Decisions

Statement of Cash Flows

Financial Statement Analysis

Cost of Quality

Activity-Based Absorption Costing

The Predetermined Overhead Rate and Capacity

Job-Order Costing: a Microsoft Excel-Based Approach

Fifo Method

Service Department Allocations

Analyzing Mixed Costs

Time-Driven Activity-Based Costing: a Microsoft Excel-Based Approach

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Standard Cost Systems: a Financial Reporting Perspective Using Microsoft Excel

Transfer Pricing

Service Department Charges

Pricing Decisions

Income Taxes and the Present Value Method

the Direct Method of Determining the Net Cash Provided by Operating Activities

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