Question 1

How do the growth perpetuity results differ with negative and positive growths of similar magnitude,assuming everything else remains unchanged?

Accepted Answer

The denominator in the formula for growt

Question 2

When evaluating investment opportunities,we can compare and combine cash flows that occur at different points in time.

Accepted Answer

A) True 
 B)False

Question 3

A business promises to pay the investor of $2000 today a payment of $500 in one year's time,$1000 in two years' time and $1000 in three years' time.What is the present value of this business opportunity if the interest rate is 5% per year?

Accepted Answer

A) $247.06 
B) $253.78 
C) $256.88 
D) $261.07 
E) $273.09 
A) $247.06 
B) $253.78 
C) $256.88 
D) $261.07 
E) $273.09

Question 4

Given that the interest rate is 10% per annum,what is the present value of an investment that has 5 equal payments of $50,000 each year for 5 years,starting today?

Accepted Answer

A) $250,000 
B) $25,000 
C) $208,493.27 
D) $158,493.27 
E) $ 178,493.27 
A) $250,000 
B) $25,000 
C) $208,493.27 
D) $158,493.27 
E) $ 178,493.27

Question 5

Suppose a second entrepreneur approaches Joe and offers him $250,000 today for the business.Should Joe accept the new entrepreneur's offer or stick with the original offer of $100,000 and the series of payments over three years? Why?

Accepted Answer

Joe should take the original offer of $1

Question 6

The timeline below shows a $10,000 dollar investment that is being compounded at a set rate per year.What is that rate?

Accepted Answer

A) 11.25% 
B) 12.50% 
C) 15.00% 
D) 18.50% 
E) 16.25% 
A) 11.25% 
B) 12.50% 
C) 15.00% 
D) 18.50% 
E) 16.25%

Question 7

Since your first birthday,your grandparents have been depositing $1000 into a savings account on every one of your birthdays.The account pays 4% interest annually.Immediately after your grandparents make the deposit on your 18th birthday,the amount of money in your savings account will be closest to:

Accepted Answer

A) $25,645 
B) $36,465 
C) $12,659 
D) $18,000 
E) $50,645 
A) $25,645 
B) $36,465 
C) $12,659 
D) $18,000 
E) $50,645

Question 8

The present value (PV)of a stream of cash flows is just the sum of the present values of each individual cash flow.

Accepted Answer

A) True 
 B)False

Question 9

What is the internal rate of return (IRR)of an investment that requires an initial investment of $10,000 today and pays $14,000 in one year's time?

Accepted Answer

A) 4% 
B) 14% 
C) 24% 
D) 40% 
E) 33% 
A) 4% 
B) 14% 
C) 24% 
D) 40% 
E) 33%

Question 10

An investor receives X dollars at the end of each of the next 3 years.If the present value of her investment is $10 million,what is her yearly cash flow,given that the interest rate is 5%?

Accepted Answer

A) $3.672 million 
B) $3.33 million 
C) $2.5 million 
D) $2.879 million 
E) $3.472 million 
A) $3.672 million 
B) $3.33 million 
C) $2.5 million 
D) $2.879 million 
E) $3.472 million

Question 11

An investor receives $250,000 at the end of each of the next 5 years.What is the present value of her investment,given that the interest rate is 5%?

Accepted Answer

A) $1,082,369.17 
B) $1,250,000 
C) $979,407.71 
D) $1,332,369.17 
E) $1,000,000 
A) $1,082,369.17 
B) $1,250,000 
C) $979,407.71 
D) $1,332,369.17 
E) $1,000,000

Question 12

What is the Net Present Value of this investment,given that the interest rate is 5%?

Accepted Answer

A) $100,000 
B) $0 
C) -$1,190.48 
D) -$3,514.74 
E) -$22,222.22 
A) $100,000 
B) $0 
C) -$1,190.48 
D) -$3,514.74 
E) -$22,222.22

Question 13

Which of the following investments has a higher present value,assuming the same (strictly positive)interest rate applies to both investments?

Accepted Answer

A) Investment X has a higher present value. 
B) Investment Y has a higher present value. 
C) Investment X and Investment Y have the same present value,since the total of the cash flows is the same for both. 
D) Investment Y has half the present value of Investment X. 
E) No comparison can be made - we need to know the interest rate to calculate the present value. 
A) Investment X has a higher present value. 
B) Investment Y has a higher present value. 
C) Investment X and Investment Y have the same present value,since the total of the cash flows is the same for both. 
D) Investment Y has half the present value of Investment X. 
E) No comparison can be made - we need to know the interest rate to calculate the present value.

Question 14

Assuming that college costs continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7% interest,then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to:

Accepted Answer

A) $97,110 
B) $107,532 
C) $101,291 
D) $50,000 
E) $85,790 
A) $97,110 
B) $107,532 
C) $101,291 
D) $50,000 
E) $85,790

Question 15

What is the PV of an investment that will pay you $1,500 every year,forever,starting in one year's time,if the interest rate is 8%?

Accepted Answer

A) $18,750 
B) $1,500 
C) $15,000 
D) $25,000 
E) $12,000 
A) $18,750 
B) $1,500 
C) $15,000 
D) $25,000 
E) $12,000

Question 16

Allan decides to invest in a new company which would allow him to receive $250,000 at the end of each year for the next 5 years.He purchases 100,000 shares at the price of $6.50.What is the NPV of a single share,if the interest rate is 15% per year?

Accepted Answer

A) $8.38 
B) $1.88 
C) $6.00 
D) $838,038.77 
E) $188,038.77 
A) $8.38 
B) $1.88 
C) $6.00 
D) $838,038.77 
E) $188,038.77

Question 17

A bank is negotiating a loan.The loan can either be paid off as a lump sum of $100,000 at the end of five years,or as equal annual payments at the end of each of the next five years.If the interest rate on the loan is 10%,what annual payments should be made so that both forms of payment are equivalent?

Accepted Answer

A) $12,000 
B) $16,380 
C) $19,588 
D) $20,000 
E) $18,000 
A) $12,000 
B) $16,380 
C) $19,588 
D) $20,000 
E) $18,000

Question 18

An investment of $6000 at the start of the year will pay $1000 at the end of the year for a set number of years.What is the minimum number of years these payments must be made for if the investment is to be worthwhile,given that the interest rate is 6%?

Accepted Answer

A) 6 years 
B) 7 years 
C) 8 years 
D) 9 years 
E) 10 years 
A) 6 years 
B) 7 years 
C) 8 years 
D) 9 years 
E) 10 years

Question 19

You are given two choices of investments,Investment A and Investment B.Both investments have the same future cash flows.Investment A has a discount rate of 4%,and Investment B has a discount rate of 5%.Which of the following is TRUE?

Accepted Answer

A) The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B. 
B) The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B. 
C) The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B. 
D) The present value of cash flows in Investment A is half the present value of cash flows in Investment B. 
E) No comparison can be made - we need to know the cash flows to calculate the present value. 
A) The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B. 
B) The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B. 
C) The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B. 
D) The present value of cash flows in Investment A is half the present value of cash flows in Investment B. 
E) No comparison can be made - we need to know the cash flows to calculate the present value.

Question 20

You are offered an investment opportunity that costs you $28,000,has a net present value (NPV)of $2278,lasts for three years,has interest rate of 10%,and produces the following cash flows:   The missing cash flow from year 2 is closest to:

Accepted Answer

A) $12,500 
B) $12,000 
C) $13,000 
D) $10,000 
E) $14,000 
A) $12,500 
B) $12,000 
C) $13,000 
D) $10,000 
E) $14,000

Exam 4: The Time Value of Money

How do the growth perpetuity results differ with negative and positive growths of similar magnitude,assuming everything else remains unchanged?

When evaluating investment opportunities,we can compare and combine cash flows that occur at different points in time.

A business promises to pay the investor of $2000 today a payment of $500 in one year's time,$1000 in two years' time and $1000 in three years' time.What is the present value of this business opportunity if the interest rate is 5% per year?

Given that the interest rate is 10% per annum,what is the present value of an investment that has 5 equal payments of $50,000 each year for 5 years,starting today?

Suppose a second entrepreneur approaches Joe and offers him $250,000 today for the business.Should Joe accept the new entrepreneur's offer or stick with the original offer of $100,000 and the series of payments over three years? Why?

The timeline below shows a $10,000 dollar investment that is being compounded at a set rate per year.What is that rate?

The present value (PV)of a stream of cash flows is just the sum of the present values of each individual cash flow.

What is the internal rate of return (IRR)of an investment that requires an initial investment of $10,000 today and pays $14,000 in one year's time?

An investor receives X dollars at the end of each of the next 3 years.If the present value of her investment is $10 million,what is her yearly cash flow,given that the interest rate is 5%?

An investor receives $250,000 at the end of each of the next 5 years.What is the present value of her investment,given that the interest rate is 5%?

What is the Net Present Value of this investment,given that the interest rate is 5%?

Which of the following investments has a higher present value,assuming the same (strictly positive)interest rate applies to both investments?

Assuming that college costs continue to increase an average of 4% per year and that all her college savings are invested in an account paying 7% interest,then the amount of money she will need to have available at age 18 to pay for all four years of her undergraduate education is closest to:

What is the PV of an investment that will pay you $1,500 every year,forever,starting in one year's time,if the interest rate is 8%?

Allan decides to invest in a new company which would allow him to receive $250,000 at the end of each year for the next 5 years.He purchases 100,000 shares at the price of $6.50.What is the NPV of a single share,if the interest rate is 15% per year?

An investment of $6000 at the start of the year will pay $1000 at the end of the year for a set number of years.What is the minimum number of years these payments must be made for if the investment is to be worthwhile,given that the interest rate is 6%?

You are given two choices of investments,Investment A and Investment B.Both investments have the same future cash flows.Investment A has a discount rate of 4%,and Investment B has a discount rate of 5%.Which of the following is TRUE?

You are offered an investment opportunity that costs you $28,000,has a net present value (NPV)of $2278,lasts for three years,has interest rate of 10%,and produces the following cash flows: The missing cash flow from year 2 is closest to:

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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