Question 1

Consider the following timeline:   If the current market rate of interest is 9%, then the present value (PV)of this timeline as of year 0 is closest to:

Accepted Answer

A) $400 
B) $492 
C) $637 
D) $600 
A) $400 
B) $492 
C) $637 
D) $600

Question 2

Jeff has the opportunity to receive lump-sum payments either now or in the future. Which of the following opportunities is the best, given that the interest rate is 7% per year?

Accepted Answer

A) One that pays $1 500 in five years 
B) One that pays $1 200 in two years 
C) One that pays $1 800 in ten years 
D) One that pays $1 000 now 
A) One that pays $1 500 in five years 
B) One that pays $1 200 in two years 
C) One that pays $1 800 in ten years 
D) One that pays $1 000 now

Question 3

Samantha enters a rent-to-own agreement for living room furniture. She will pay $60 per month for one year. Which of the following shows the timeline for her payments if the first payment is one month from now?

Accepted Answer

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

Question 4

Whenever a good trades in a competitive market, the price the good trades for determines the value of the good.

Accepted Answer

A) True 
 B)False

Question 5

In order to distinguish between inflows and outflows, different colours are assigned to each of these cash flows when constructing a timeline.

Accepted Answer

A) True 
 B)False

Question 6

A wholesale food retailer is offered $14 per carton for 5 000 cartons of peaches. The wholesaler can buy peaches from their growers at $12.50 per carton. Shipping costs $1.50 per carton, for the first 1 000 cartons, and $1.00 per carton for every carton over that. Will taking this opportunity increase the value of the wholesale food retailer?

Accepted Answer

A) No. The costs are $1 200 more than the benefits. 
B) Yes. The costs are $1 000 less than the benefits. 
C) Yes. The costs are $2 000 less than the benefits. 
D) No. The costs and the benefits are the same. 
A) No. The costs are $1 200 more than the benefits. 
B) Yes. The costs are $1 000 less than the benefits. 
C) Yes. The costs are $2 000 less than the benefits. 
D) No. The costs and the benefits are the same.

Question 7

An investment will pay $205 000 in one year's time for an investment of $183 000 today. If the market interest rate is 8% over the same period, should this investment be made?

Accepted Answer

A) No, because the investment will yield $6 240 less than putting the money in a bank. 
B) Yes, because the investment will yield $4 280 more than putting the money in a bank. 
C) Yes, because the investment will yield $2 360 more than putting the money in a bank. 
D) Yes, because the investment will yield $7 360 more than putting the money in a bank. 
A) No, because the investment will yield $6 240 less than putting the money in a bank. 
B) Yes, because the investment will yield $4 280 more than putting the money in a bank. 
C) Yes, because the investment will yield $2 360 more than putting the money in a bank. 
D) Yes, because the investment will yield $7 360 more than putting the money in a bank.

Question 8

Cost-benefit analysis cannot be performed in cases that are occurring in different currencies.

Accepted Answer

A) True 
 B)False

Question 9

A lender lends $10 000, which is to be repaid in annual payments of $2 000 for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?

Accepted Answer

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

Question 10

Heavy Duty Inc., a manufacturer of power tools, decides to offer a rebate of $100 on its 16-inch mid-range chain saw, which currently has a retail price of $470. Heavy Duty's marketers estimate that, as a result of the rebate, sales of this model will increase from 50 000 to 80 000 units next year. The profit margin for Heavy Duty before the rebate is $150. Based on the given information, is the decision to give the rebate a wise one?

Accepted Answer

A) Yes, since the benefits are $1.5 million more than the costs. 
B) No, since costs are $5.0 million more than benefits. 
C) Yes, since the benefits are $0.2 million more than the costs. 
D) No, since costs are $3.5 million more than benefits. 
A) Yes, since the benefits are $1.5 million more than the costs. 
B) No, since costs are $5.0 million more than benefits. 
C) Yes, since the benefits are $0.2 million more than the costs. 
D) No, since costs are $3.5 million more than benefits.

Question 11

Samantha has holdings of 250 ounces of platinum, currently valued at $815 dollars per ounce. She estimates that the price of platinum will rise to $850 per ounce in the next year. If the interest rate is 8%, should she sell the platinum today?

Accepted Answer

A) Yes, as the difference between selling now and selling in one year is $6 991 today. 
B) Yes, as the difference between selling now and selling in one year is $5 513 today. 
C) Yes, as the difference between selling now and selling in one year is $7 550 today. 
D) No, as the difference between selling now and selling in one year is -$6 988 today. 
A) Yes, as the difference between selling now and selling in one year is $6 991 today. 
B) Yes, as the difference between selling now and selling in one year is $5 513 today. 
C) Yes, as the difference between selling now and selling in one year is $7 550 today. 
D) No, as the difference between selling now and selling in one year is -$6 988 today.

Question 12

If the interest rate is 5%, the one-year discount factor is equal to

Accepted Answer

A) 1.045. 
B) 0.952. 
C) 0.050. 
D) 1.050. 
A) 1.045. 
B) 0.952. 
C) 0.050. 
D) 1.050.

Question 13

A mining company is offering to trade you 7 250 tonnes of low-grade copper ore for 5 000 tonnes of high-grade copper ore. Assuming you currently have 5 000 tonnes of high-grade ore, what should you do?

Accepted Answer

Don't trade. Colooma should keep the hig

Question 14

The 'one-year discount factor' is the discount at which we can purchase money in the future.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the table above. An international seafood supplier is offered 9.45 million yen today for 1 000 kilograms of abalone frozen in the shell. The abalone can be sourced from various countries at the prices shown above. The current market exchange rates between Australia and the other relevant currencies are also shown. In addition, $1 AUD = 105 yen. What is the value of the best deal the international seafood supplier can make, in Australian dollars?

Accepted Answer

A) $8 000 
B) $10 000 
C) $7 000 
D) $5 000 
A) $8 000 
B) $10 000 
C) $7 000 
D) $5 000

Question 16

A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a kilo for 10 000 kilos, if it also buys 5 000 kilos of wheat at $16.00 per kilo. However, the manufacturer does not use any barley in its products, and currently needs 20 000 kilos of wheat. If the current market price of barley is $3.80 per kilo, and wheat is $15.80 per kilo, should this opportunity be taken, and why?

Accepted Answer

A) Because the value of the opportunity is negative, the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat, the opportunity should not be taken. 
C) Because the company has no need of barley, the opportunity should not be taken. 
D) Because the value of the opportunity is positive, the opportunity should be taken. 
A) Because the value of the opportunity is negative, the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat, the opportunity should not be taken. 
C) Because the company has no need of barley, the opportunity should not be taken. 
D) Because the value of the opportunity is positive, the opportunity should be taken.

Question 17

Is there a need to distinguish between cash inflows and outflows on a timeline?

Accepted Answer

Cash inflows and outflows should have op

Question 18

One of the main obstacles in cost-benefit analysis is that not all expected benefits can be stated in dollar terms.

Accepted Answer

A) True 
 B)False

Question 19

Diwali Airlines has a contract that gives it the opportunity to purchase up to 10 000 000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.26 per gallon. Diwali believes it will only need 6 000 000 gallons of jet fuel. What is the value of this opportunity?

Accepted Answer

A) $9 040 000 
B) $2 600 000 
C) $1 040 000 
D) $1 560 000 
A) $9 040 000 
B) $2 600 000 
C) $1 040 000 
D) $1 560 000

Question 20

Use the information for the question(s)below.
   As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Assuming you currently have 10 000 tonnes of WAI crude, the added benefit (cost)to you if you were to sell the 10 000 tonnes of WAI crude and use the proceeds to purchase and refine TOC crude are closest to:

Accepted Answer

A) ($524) 
B) $524 
C) ($1 819) 
D) $1 819 
A) ($524) 
B) $524 
C) ($1 819) 
D) $1 819

Consider the following timeline: If the current market rate of interest is 9%, then the present value (PV)of this timeline as of year 0 is closest to:

Jeff has the opportunity to receive lump-sum payments either now or in the future. Which of the following opportunities is the best, given that the interest rate is 7% per year?

Samantha enters a rent-to-own agreement for living room furniture. She will pay $60 per month for one year. Which of the following shows the timeline for her payments if the first payment is one month from now?

Whenever a good trades in a competitive market, the price the good trades for determines the value of the good.

In order to distinguish between inflows and outflows, different colours are assigned to each of these cash flows when constructing a timeline.

An investment will pay $205 000 in one year's time for an investment of $183 000 today. If the market interest rate is 8% over the same period, should this investment be made?

Cost-benefit analysis cannot be performed in cases that are occurring in different currencies.

A lender lends $10 000, which is to be repaid in annual payments of $2 000 for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?

Samantha has holdings of 250 ounces of platinum, currently valued at $815 dollars per ounce. She estimates that the price of platinum will rise to $850 per ounce in the next year. If the interest rate is 8%, should she sell the platinum today?

If the interest rate is 5%, the one-year discount factor is equal to

A mining company is offering to trade you 7 250 tonnes of low-grade copper ore for 5 000 tonnes of high-grade copper ore. Assuming you currently have 5 000 tonnes of high-grade ore, what should you do?

The 'one-year discount factor' is the discount at which we can purchase money in the future.

Is there a need to distinguish between cash inflows and outflows on a timeline?

One of the main obstacles in cost-benefit analysis is that not all expected benefits can be stated in dollar terms.

Diwali Airlines has a contract that gives it the opportunity to purchase up to 10 000 000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.26 per gallon. Diwali believes it will only need 6 000 000 gallons of jet fuel. What is the value of this opportunity?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

Filters

Exam 3: Time Value of Money: an Introduction

Consider the following timeline: If the current market rate of interest is 9%, then the present value (PV)of this timeline as of year 0 is closest to:

Jeff has the opportunity to receive lump-sum payments either now or in the future. Which of the following opportunities is the best, given that the interest rate is 7% per year?

Samantha enters a rent-to-own agreement for living room furniture. She will pay $60 per month for one year. Which of the following shows the timeline for her payments if the first payment is one month from now?

Whenever a good trades in a competitive market, the price the good trades for determines the value of the good.

In order to distinguish between inflows and outflows, different colours are assigned to each of these cash flows when constructing a timeline.

An investment will pay $205 000 in one year's time for an investment of $183 000 today. If the market interest rate is 8% over the same period, should this investment be made?

Cost-benefit analysis cannot be performed in cases that are occurring in different currencies.

A lender lends $10 000, which is to be repaid in annual payments of $2 000 for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?

Samantha has holdings of 250 ounces of platinum, currently valued at $815 dollars per ounce. She estimates that the price of platinum will rise to $850 per ounce in the next year. If the interest rate is 8%, should she sell the platinum today?

If the interest rate is 5%, the one-year discount factor is equal to

A mining company is offering to trade you 7 250 tonnes of low-grade copper ore for 5 000 tonnes of high-grade copper ore. Assuming you currently have 5 000 tonnes of high-grade ore, what should you do?

The 'one-year discount factor' is the discount at which we can purchase money in the future.

Is there a need to distinguish between cash inflows and outflows on a timeline?

One of the main obstacles in cost-benefit analysis is that not all expected benefits can be stated in dollar terms.

Diwali Airlines has a contract that gives it the opportunity to purchase up to 10 000 000 gallons of jet fuel at $2.00 per gallon. The current market price of jet fuel is $2.26 per gallon. Diwali believes it will only need 6 000 000 gallons of jet fuel. What is the value of this opportunity?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

Filters