Deck 7: Net Benefits Over Time and Present Value

Question 1

What is the present value of $150 acquired in 2 years with a discount rate of 2% (approximately)?

A)$156
B)$150
C)$144
D)$130

Answer 1

C

Question 2

If you put $50 in a savings account paying 4% for 2 years, and the interest rate is 4%, approximately how much money will you end up with?

A)$52
B)$55
C)$54
D)$58

Answer 2

B

Question 3

When one incorporates inflation into a present value calculation, which of the following is the most correct?

A)the inflation-corrected discount rate should be equal to the nominal interest rate minus the inflation rate
B)if the net benefits are not corrected for inflation, the discount rate shouldn't be either
C)the discount rate should be equal to the nominal interest rate plus the inflation rate
D)all of the above
E)a and b only

Answer 3

E

Question 4

Present values of alternative projects of different lengths of time cannot be compared directly because

A)the net benefits must be analyzed carefully in the more distant future
B)the discounted net benefits in more distant years will be smaller, all else equal
C)the net benefits can be compared directly.The premise of this question is incorrect.
D)If a project lasting for fewer years can be repeated, its present value will be underestimated using standard analysis

Question 5

The decision rule for the internal rate of return states that if the IRR

A)is greater than the market interest rate the project should be approved
B)is lower than the market interest rate the project should be approved
C)is roughly the same as the market interest rate the project should be approved
D)is greater than 0 the project should be approved

Question 6

Suppose a program costs $100 with no benefits in year 0 and has net benefits of $40 for the next three years.With a discount rate of 6%, what is the program's present value?

A)$6.92
B)$20
C)$27.20
D)$13.21

Question 7

Suppose a program has 0 initial costs and provides a net benefit of $10 every year forever.If the discount rate is 3%, approximately what is the present value of the program?

A)$10.30
B)$333.33
C)$1,000
D)∞

Question 8

A program has initial costs of $1,300.If the benefits of the program are $500 each year and costs are $200 each year, what is the internal rate of return over 5 years?

A).01
B).1
C).05
D).5

Question 9

Assume a project has $500 in initial costs.If annual benefits of the project are $800 and annual costs are $500, using a discount rate of 5%, what is the discounted benefit/cost ratio over 3 years?

A)1.20
B)1.36
C)1.17
D)1.09