Deck 21: Capital Investment Decisions and the Time Value of Money

Question 1

The payback period and rate of return (ROR) methods are more suitable to investments with a shorter time span.

Answer 1

True

Question 2

When projecting the cash flows of an investment, the inflows are netted against the outflows.

Answer 2

True

Question 3

After a company invests in capital assets, which of the following activities will it perform in order to compare the actual to the projected net cash inflows?

A) Cash flow analysis
B) Post-audit
C) Pre and post analysis
D) Post-cash flow

Answer 3

B

Question 4

A post-audit is an analysis of an investment that is made after the investment is underway or completed.

Question 5

Which of the following BEST describes the term capital rationing?

A) When a company's resources are limited, it is choosing between alternative investment opportunities.
B) When a company has unlimited resources, it is finding the most number of profitable investment opportunities.
C) When a company is encountering cash flow shortages, it is finding ways of increasing revenues.
D) When a company has limited resources, it is finding ways to cut operating costs.

Question 6

Short-term investment decisions are inherently riskier than long-term decisions because they have a shorter period in which to recoup the investment.

Question 7

Which of the following capital budgeting models is most likely to be used if a company's goal is to maximize their operating book income?

A) Payback
B) Net present value
C) Internal rate of return
D) Rate of return

Question 8

Which of the following is the ONLY capital budgeting method which uses accrual accounting information?

A) Payback period
B) Rate of return (ROR)
C) Net present value (NPV)
D) Internal rate of return (IRR)

Question 9

When projecting future cash flows of an investment, which of the following is TRUE?

A) Cash flow data must also include non-cash transactions like depreciation.
B) Cash inflows and cash outflows are treated separately, rather than being netted together.
C) Cash flows are typically projected by accounting personnel without input from other business functions.
D) The initial investment is always treated separately from all other cash flows.

Question 10

Which of the following BEST describes a post-audit?

A) An audit of an operating unit of a company
B) An audit performed after financial statements have been issued
C) An analysis of an investment's cash flows prior to committing to the initial investment
D) An analysis of an investment that is made after the investment is underway or completed

Question 11

The payback method and the rate of return method are often used to perform an initial screening of investments, rather than a detailed in-depth analysis.

Question 12

Most capital budgeting methods focus on cash flows rather than book income.

Question 13

Which two methods are typically used for initial screening of investments, rather than for detailed in-depth analysis?

A) Payback and rate of return
B) Net present value and payback
C) Internal rate of return and net present value
D) Rate of return and net present value

Question 14

Capital budgeting applies to which of the following?

A) Budgeting for yearly operational expenses
B) Making decisions about sales budgets for the coming year
C) Deciding among various long-term investment decisions
D) Making decisions about the financing of operations

Question 15

Which of the following is a common capital budgeting method?

A) Return on assets
B) Acid test ratio
C) Internal rate of return
D) Debt-to-equity ratio

Question 16

Which of the following is a common capital budgeting method?

A) Return on assets
B) Net present value
C) Inventory turnover
D) Debt-to-equity ratio

Question 17

All else being equal, investments with longer payback periods are more desirable.

Question 18

The further into the future the investment cash flows extend, the more likely it is that actual results will differ from the initial predictions.

Question 19

Capital rationing is when a company has limited resources, and it must find ways to reduce operating expenses in all of its divisions and units.

Question 20

Capital budgeting methods which do NOT incorporate time value of money are generally used for the initial stage of screening investment alternatives.

Question 21

ABC Company is adding a new product line that will require an investment of $1,500,000. The product line is estimated to generate cash inflows of $300,000 the first year, $250,000 the second year, and $200,000 each year thereafter for ten more years. What is the payback period?

A) 2.73 years
B) 6.00 years
C) 6.75 years
D) 7.25 years

Question 22

The payback method can only be used when the net cash inflows from a capital investment are the same for each period.

Question 23

The rate of return calculations ignores the time value of money, but the payback period does include consideration of the time value of money.

Question 24

Which of the following describes the purpose of a post-audit?

A) To screen initial investment alternatives
B) To determine whether investments are going as planned, or whether they should be abandoned
C) To determine the amount of the initial investment outlay
D) To evaluate the company's internal controls

Question 25

Simms Manufacturing is considering two alternative investment proposals with the following data:
$\begin{array}{|l|r|r|r|}\hline &\text { Proposal X } & \text { Proposal Y } \\ \hline \text { Investment } & \$ 620,000 & \$ 400,000 \\\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \\\hline \text { Estimated annual net cash inflows for 8 years } & \$ 130,000 & \$ 80,000 \\\hline \text { Residual value } & \$ 60,000 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Required rate of return } & 14 \% & 10 \%\\\hline \end{array}$



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What is the accounting rate of return for Proposal Y?

A) 15.0%
B) 16.0%
C) 20.0%
D) 40.0%

Question 26

The rate of return is the only capital budgeting method that uses accrual accounting.

Question 27

Capital budgeting is:

A) planning how to invest in long-term assets.
B) budgeting for operating expenses.
C) evaluating the ongoing profitability of a business.
D) making pricing decisions for products.

Question 28

The payback method and the rate of return method are both conceptually better than the discounted cash flow models because they are based on cash flows.

Question 29

Which capital budgeting method uses accrual accounting, rather than net cash flows, as a basis for calculations?

A) Payback
B) Rate of return
C) Net present value
D) Internal rate of return

Question 30

Which of the following methods ignores the time value of money?

A) Payback
B) Internal rate of return
C) Return on assets
D) Net present value

Question 31

Simms Manufacturing is considering two alternative investment proposals with the following data:
$\begin{array}{|l|r|r|r|}\hline &\text { Proposal X } & \text { Proposal Y } \\ \hline \text { Investment } & \$ 620,000 & \$ 400,000 \\\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \\\hline \text { Estimated annual net cash inflows for 8 years } & \$ 130,000 & \$ 80,000 \\\hline \text { Residual value } & \$ 60,000 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Required rate of return } & 14 \% & 10 \%\\\hline \end{array}$


-
How long is the payback period for Proposal X?

A) 4.50 years
B) 4.77 years
C) 8 years
D) 10.33 years

Question 32

Which of the following is TRUE regarding capital rationing decisions for capital assets?

A) Companies should always choose the investment with the shortest payback period.
B) Companies should always choose the investment with the highest net present value.
C) Companies should always choose the investment with the highest rate of return.
D) Companies should consider several different methods of evaluation before choosing an investment.

Question 33

Neither the payback period nor the rate of return capital budgeting method recognizes the time value of money.

Question 34

The rate of return method and the payback method are often used as preliminary screening measures, but are insufficient to fully evaluate a capital investment.

Question 35

A criticism of the rate of return method is that it ignores the time value of money.

Question 36

The payback method ignores cash flows after the payback period, whereas the rate of return includes them.

Question 37

The payback method uses discounted cash flows to make investment decisions.

Question 38

The payback method is a very thorough and comprehensive way to choose the best investment among alternatives.

Question 39

The payback method and the rate of return method are powerful, comprehensive evaluation tools, and would normally be sufficient to make a final investment decision.

Question 40

Logan, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:
$\begin{array}{|l|r|r|}\hline& \text { Investment A } & \text { Investment B } \\ \hline \text { Initial capital investment } & \$ 60,000 & \$ 90,000 \\\hline \text { Estimated useful life } & 3 \text { year } & 3 \text { years } \\\hline \text { Estimated residual value } & -0- & -0-\\\hline \text { Estimated annual net cash inflow for 3 years } & \$ 25,000 & \$ 40,000 \\\hline \text { Reguired rate of retum } & 10 \% & 12 \% \\\hline\end{array}$


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How long is the payback period for Investment A?

A) 0.4 years
B) 2.4 years
C) 2.5 years
D) 3.0 years

Question 41

Logan, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:
$\begin{array}{|l|r|r|}\hline& \text { Investment A } & \text { Investment B } \\ \hline \text { Initial capital investment } & \$ 60,000 & \$ 90,000 \\\hline \text { Estimated useful life } & 3 \text { year } & 3 \text { years } \\\hline \text { Estimated residual value } & -0- & -0-\\\hline \text { Estimated annual net cash inflow for 3 years } & \$ 25,000 & \$ 40,000 \\\hline \text { Reguired rate of retum } & 10 \% & 12 \% \\\hline\end{array}$



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How long is the payback period for Investment B?

A) 0.44 years
B) 2.25 years
C) 2.35 years
D) 3.00 years

Question 42

Clapton Corporation is considering an investment in new equipment costing $900,000. The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a salvage value of $90,000. The equipment is expected to generate net cash flows of $140,000 for each of the first five years and $100,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment?

A) 12.1%
B) 7.9%
C) 17.3%
D) 9.7%

Question 43

Sullivan Company is considering the purchase of a new machine costing $80,000. Sullivan's management is estimating that the new machine will generate additional cash flows of $12,000 a year for ten years and have a salvage value of $3,000 at the end of ten years. What is the machine's payback period?

A) 7 years
B) 6.7 years
C) 6 years
D) 5.33 years

Question 44

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$

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What is the payback period for Project A?

A) 3.5 years
B) 4.5 years
C) 4.0 years
D) 5.0 years

Question 45

Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash inflows as follows:
$\begin{array}{|l|l|}\hline \text { Year 1 } & \$ 100,000 \\\hline \text { Year 2 } & \$ 100,000 \\\hline \text { Year 3 } & \$ 125,000 \\\hline \text { Year 4 } & \$ 125,000 \\\hline \text { Year 5 } & \$ 75,000 \\\hline\end{array}$
Using the table below, please calculate the profitability index of the project using a discount rate of 10%. Please round all calculations to the nearest whole dollar.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { l } \text { Prefent Value } \\\text { of \$1 }\end{array} & & & & & & \\\hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$$

A) 1.67
B) 2.07
C) 1.20
D) 1.14

Question 46

If Teddy Godfried invests $400,000 today at a rate of 9% compounding yearly, his investment will grow to $1,000,000 in 10 years.
$\begin{array}{|r|r|r|r|r|r|r|}\hline \text {Future}\\\text {Value of}\\\$1\\\hline&4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \%\\\hline 1 & 1.040 & 1.050 & 1.069 & 1.07 & 1.080 & 1.090 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.14 & 1.160 & 1.188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.22 & 1.260 & 1.295 \\\hline 4 & 1.170 & 1.216 & 1.26 & 1.311 & 1.360 & 1.412 \\\hline 5 & 1.217 & 1.276 & 1.33 & 1.40 & 1.469 & 1.539 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.501 & 1.587 & 1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 & 1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.719 & 1.851 & 1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.839 & 1.999 & 2.172 \\\hline 10 & 1.480 & 1.629 & 1.791 & 1.967 & 2.159 & 2.367 \\\hline\end{array}$

Question 47

Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash inflows as follows:
$\begin{array}{|l|l|}\hline \text { Year 1 } & \$ 100,000 \\\hline \text { Year 2 } & \$ 100,000 \\\hline \text { Year 3 } & \$ 125,000 \\\hline \text { Year 4 } & \$ 125,000 \\\hline \text { Year 5 } & \$ 75,000 \\\hline\end{array}$
Using the factors in the table below, please calculate the net present value of the net cash inflows above,
Using a discount rate of 10%. Please round all calculations to the nearest whole dollar.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { l } \text { Prasent Value } \\\text { of \$1 }\end{array} & & & & & & \\\hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$$

A) $399,325
B) $342,800
C) $401,667
D) $399,761

Question 48

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$



-
What is the rate of return for Project A?

A) 50%
B) 4%
C) 16%
D) 10%

Question 49

Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash flows as follows:
$$\begin{array} { | l | l | } \hline \text { Year 1 } & 100,000 \\\hline \text { Year 2 } & 100,000 \\\hline \text { Year 3 } & \$ 125,000 \\\hline \text { Year 4 } & \$ 125,000 \\\hline \text { Year 5 } & \$ 75,000 \\\hline\end{array}$$
What is the payback period?

A) 4 years
B) 3.2 years
C) 3.5 years
D) 3 years

Question 50

Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash inflows as follows:
$$\begin{array} { | l | r | } \hline \text { Year 1 } & \$ 100,000 \\\hline \text { Year 2 } & \$ 100,000 \\\hline \text { Year 3 } & \$ 125,000 \\\hline \text { Year 4 } & \$ 125,000 \\\hline \text { Year 5 } & \$ 75,000 \\\hline\end{array}$$
Using the factors in the table below, please calculate the net present value of the investment project (including initial investment plus the NPV of the net cash inflows above) using a discount rate of 10%. Please round all calculations to the nearest whole dollar.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { l } \text { Prasent Value } \\\text { of \$1 }\end{array} & & & & & & \\\hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$$

A) $41,667.
B) $49,325
C) $41,667
D) $39,761

Question 51

Landmark Company is considering an investment in new equipment costing $360,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $70,000 the first year, $80,000 the second year, and $120,000 every year thereafter until the fifth year. What is the payback period for this investment? The residual value is zero.

A) 3.25 years
B) 3.50 years
C) 3.75 years
D) 4 years

Question 52

Pearl Manufacturing is considering an investment in equipment costing $660,000. The equipment will be depreciated on the straight-line basis over an eight-year period with an estimated residual value of $120,000. The investment is expected to generate annual net cash inflows of $135,000 for 8 years. Using the rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve a 14% rate of return?

A) $18,900
B) $37,800
C) $54,600
D) $92,400

Question 53

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$




-
What is the rate of return for Project C?

A) 5%
B) 4%
C) 18%
D) 10%

Question 54

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$



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What is the rate of return for Project B?

A) 50%
B) 4%
C) 18%
D) 10%

Question 55

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$


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What is the payback period for Project C?

A) 3.5 years
B) 2.5 years
C) 2.4 years
D) 3.0 years

Question 56

Simms Manufacturing is considering two alternative investment proposals with the following data:
$\begin{array}{|l|r|r|}\hline &\text { Proposal X } & \text { Proposal Y } \\\hline \text { Investment } & \$ 620,000 & \$ 400,000 \\\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \\\hline \text { Estimated annual net cash inflows for } 8 & & \\\text { years } & \$ 130,000 & \$ 80,000 \\\hline \text { Residual value } & \$ 0 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Discount rate } & 9 \% & 10 \% \\\hline\end{array}$

$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Present Value of } \\\text { an Annuity of \$1 }\end{array} & & & & & & \\ \hline 1 & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 2 & 1.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 3 & 2.723 & 2.83 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 4 & 3.546 & 3.465 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 5 & 4.329 & 4.21 & 4.100 & 3.312 & 3.240 & 3.170 \\\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 3.890 & 3.79 \\\hline 7 & 5.786 & 5.58 & 5.389 & 5.206 & 5.033 & 4.355 \\\hline 8 & 6.463 & 6.210 & 5.971 & 5.747 & 5.535 & 5.335 \\\hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 & 5.759 \\\hline 10 & 7.722 & 7.360 & 7.024 & 6.710 & 6.418 & 6.145 \\\hline\end{array}$$
After calculating the net present value of the two alternatives, Proposal Y appears to deliver the most
favorable results.

Question 57

Atlantic Company is considering investing in specialized equipment costing $360,000. The equipment has a useful life of 5 years and a residual value of $45,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are:
$$\begin{array} { | l | r | } \hline \text { Year 1 } & \$ 160,000 \\\hline \text { Year 2 } & 130,000 \\\hline \text { Year 3 } & 100,000 \\\hline \text { Year 4 } & 55,000 \\\hline \text { Year 5 } & 40,000 \\\hline & \$ 485,000 \\\hline\end{array}$$
What is the rate of return on the investment?

A) 16.8%
B) 23.9%
C) 18.9%
D) 12.4%

Question 58

Wasson Corporation is considering an investment project costing $520,000. The project is estimated to have an eight-year life, generate annual cash flows of $120,000, and have a salvage value of $40,000 after eight years. What is the project's payback period?

A) 2.8 years
B) 4.3 years
C) 4 years
D) 6.5 years

Question 59

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$


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What is the payback period for Project B?

A) 3.5 years
B) 2.5 years
C) 2.4 years
D) 3.0 years

Question 60

Dylan Company is considering an investment in new equipment costing $720,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a salvage value of $45,000. The equipment is expected to generate net cash flows totaling $970,000 during the five years. What is the rate of return associated with the equipment investment?

A) 15.4%
B) 16.4%
C) 30.4%
D) 13.9%

Question 61

If Alice Godfried invests $14,000 today at a rate of 4% compounding yearly, what will the value of the investment be in 8 years?
$\begin{array}{|c|c|c|c|c|c|c|}\hline\text { Future } \\\text { Value of } \\\$ 1\\\hline&4\%&5\%&6\%&7\%&8\%&9\%\\\hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\\hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\\hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\\hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\\hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\\hline\end{array}$

A) $18,311
B) $19,967
C) $19,166
D) $19,000

Question 62

John Doe wins the lottery and may pick from the following three choices:
Take $750,000 now.
Take $1,000,000 ten years from now.
Take $90,000 at the end of this year, and at the end of each following year for ten installments in total.
Assume that John Doe uses a discount rate of 5% to evaluate his choices. If he selects the second option, how much is the present value of that alternative?
$$\begin{array} { | r | r | r | r | r | r | r | } \hline\begin{array} { l } \text { Present } \\\text { Value of } \\\text {\$1 }\end{array} & & & & & & \\\hline& 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \%\\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 & 0.564 \\\hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 & 0.513 \\\hline 8 & 0.677 & 0.627 & 0.582 & 0.540 & 0.502 & 0.467 \\\hline 9 & 0.645 & 0.592 & 0.544 & 0.500 & 0.460 & 0.424 \\\hline 10 & 0.614 & 0.558 & 0.508 & 0.463 & 0.422 & 0.386 \\\hline\end{array}$$

A) $614,000
B) $1,000,000
C) $750,000
D) $798,000

Question 63

You are currently 25 and would like to retire at age 45. You plan to save by making equal investments of $10,000 at the end of each year for the next 20 years. If you are able to earn 8% per year on your investments, how much will you have at the end of the 20 years? Please refer to the table below:
Future Value of an Annuity of $1
$$\begin{array} { | r | r | l | } \hline \text { Periods } & 8 \% & \quad\quad\quad\\\hline & & \\\hline 12 & 18.98 & \\\hline 13 & 21.5 & \\\hline 14 & 24.21 & \\\hline 15 & 27.15 & \\\hline 16 & 30.32 & \\\hline 17 & 33.75 & \\\hline 18 & 37.45 & \\\hline 19 & 41.45 & \\\hline 20 & 45.76 & \\\hline\end{array}$$

A) $216,000
B) $200,000
C) $457,600
D) $576,900

Question 64

Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the cash as a lump sum right now? Please refer to the following data, if needed:
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Present Value of } \\\text { an Annuity of \$1 }\end{array} & & & & & & \\ \hline 1 & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 2 & 1.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 3 & 2.723 & 2.83 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 4 & 3.546 & 3.465 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 5 & 4.329 & 4.21 & 4.100 & 3.312 & 3.240 & 3.170 \\\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 3.890 & 3.79 \\\hline 7 & 5.786 & 5.58 & 5.389 & 5.206 & 5.033 & 4.355 \\\hline 8 & 6.463 & 6.210 & 5.971 & 5.747 & 5.535 & 5.335 \\\hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 & 5.759 \\\hline 10 & 7.722 & 7.360 & 7.024 & 6.710 & 6.418 & 6.145 \\\hline\end{array}$$

A) $380,000
B) $386,100
C) $321,000
D) $399,000

Question 65

If Billy Pierce invests $1,000 at the end of each year at 9% compounded annually, how many years will it take until his investment reaches above $10,000?
$\begin{array}{|r|r|r|r|r|r|r|}\hline\text { Future } \\\text { Value of an} \\\text { Annuity of }\\\$ 1\\\hline & 4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \\\hline 1 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 \\\hline 2 & 2.040 & 2.050 & 2.060 & 2.070 & 2.080 & 2.090 \\ \hline 3 & 3.122 & 3.153 & 3.184 & 3.215 & 3.246 & 3.278 \\\hline 4 & 4.246 & 4.310 & 4.379 & 4.440 & 4.506 & 4.573 \\\hline 5 & 5.416 & 5.526 & 5.637 & 5.751 & 5.867 & 5.985 \\\hline 6 & 6.631 & 6.802 & 6.976 & 7.153 & 7.336 & 7.523 \\\hline 7 & 7.898 & 8.142 & 8.394 & 8.654 & 8.929 & 9.200 \\\hline 8 & 9.214 & 9.549 & 9.897 & 10.26 & 10.64 & 11.03 \\\hline 9 & 10.58 & 11.03 & 11.49 & 11.98 & 12.49 & 13.02 \\\hline 10 & 12.01 & 12.58 & 13.18 & 13.82 & 14.49 & 15.19 \\\hline\end{array}$

A) 5 years
B) 6 years
C) 7 years
D) 8 years

Question 66

If Billy Pierce invests $1,000 at the end of each year for 8 years, and he wants it to grow to at least $10,000, what interest rate would be needed?
$\begin{array}{|r|r|r|r|r|r|r|}\hline\text { Future } \\\text { Value of an} \\\text { Annuity of }\\\$ 1\\\hline & 4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \\\hline 1 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 \\\hline 2 & 2.040 & 2.050 & 2.060 & 2.070 & 2.080 & 2.090 \\ \hline 3 & 3.122 & 3.153 & 3.184 & 3.215 & 3.246 & 3.278 \\\hline 4 & 4.246 & 4.310 & 4.379 & 4.440 & 4.506 & 4.573 \\\hline 5 & 5.416 & 5.526 & 5.637 & 5.751 & 5.867 & 5.985 \\\hline 6 & 6.631 & 6.802 & 6.976 & 7.153 & 7.336 & 7.523 \\\hline 7 & 7.898 & 8.142 & 8.394 & 8.654 & 8.929 & 9.200 \\\hline 8 & 9.214 & 9.549 & 9.897 & 10.26 & 10.64 & 11.03 \\\hline 9 & 10.58 & 11.03 & 11.49 & 11.98 & 12.49 & 13.02 \\\hline 10 & 12.01 & 12.58 & 13.18 & 13.82 & 14.49 & 15.19 \\\hline\end{array}$

A) 4%
B) 5%
C) 6%
D) 7%

Question 67

Your grandmother has promised to give you $2,000 at the end of each of the next four years if you earn Cs or better in all of your courses each year. Using a discount rate of 8% and the table below, what is the present value of the gift?
$\begin{array}{|l|l|l|l|l|l|l|}\hline\text { Present } \\\text { Value of an} \\\text { Annuity of }\\\$ 1\\\hline & 5 \% & 6 \% & 7 \% & 8 \% &9 \% & 10 \% \\ \hline 1& 0.95 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2& 1.859 & 1.833 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546& 3.465 & 3.387 & 3.312 & 3.240& 3.170 \\\hline 5 & 4.329 & 4.212 & 4.100& 3.993 & 3.890& 3.791 \\\hline\end{array}$

A) $5,612
B) $5,900
C) $6,109
D) $6,624

Question 68

Billy Pierce invests $8,000 at the end of each year for 5 years at 6%. What is the future value of the investment?
$\begin{array}{|r|r|r|r|r|r|r|}\hline\text { Future } \\\text { Value of an} \\\text { Annuity of }\\\$ 1\\\hline & 4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \\\hline 1 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 \\\hline 2 & 2.040 & 2.050 & 2.060 & 2.070 & 2.080 & 2.090 \\ \hline 3 & 3.122 & 3.153 & 3.184 & 3.215 & 3.246 & 3.278 \\\hline 4 & 4.246 & 4.310 & 4.379 & 4.440 & 4.506 & 4.573 \\\hline 5 & 5.416 & 5.526 & 5.637 & 5.751 & 5.867 & 5.985 \\\hline 6 & 6.631 & 6.802 & 6.976 & 7.153 & 7.336 & 7.523 \\\hline 7 & 7.898 & 8.142 & 8.394 & 8.654 & 8.929 & 9.200 \\\hline 8 & 9.214 & 9.549 & 9.897 & 10.26 & 10.64 & 11.03 \\\hline 9 & 10.58 & 11.03 & 11.49 & 11.98 & 12.49 & 13.02 \\\hline 10 & 12.01 & 12.58 & 13.18 & 13.82 & 14.49 & 15.19 \\\hline\end{array}$

A) $45,096
B) $51,008
C) $49,599
D) $47,523

Question 69

If $1,000 is invested in an account with 4% interest compounding yearly, what will the balance of the account be after 4 years? Please refer to the following Future Value table:
$$\begin{array} {| r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\\text { Value of } \\\text { \$1 }\end{array} & & & & \\\hline & 4 \% & 5 \% & 6 \% & 7 \% \\\hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\\hline 4 & 1.170 & 1.216 & 1.262 & 1.311 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.501 \\\hline\end{array}$$

A) $1,218
B) $1,170
C) $1,040
D) $1,240

Question 70

If $5,000 is invested in an account with 7% interest compounding yearly, what will the balance of the account be after 3 years? Please refer to the following Future Value table:
$$\begin{array} { |r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\\text { Value of } \\\text { \$1 }\end{array} & & & & \\\hline & 4 \% & 5 \% & 6 \% & 7 \% \\\hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\\hline 4 & 1.170 & 1.210 & 1.262 & 1.311 \\\hline 5 & 1.217 & 1.270 & 1.338 & 1.403 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.50 \\\hline\end{array}$$

A) $6,180
B) $6,211
C) $5,867
D) $6,125

Question 71

$23,000 invested today in an account with 5% interest compounding yearly will grow to what amount in 6 years?
$\begin{array}{|c|c|c|c|c|c|c|}\hline\text { Future } \\\text { Value of } \\\$ 1\\\hline&4\%&5\%&6\%&7\%&8\%&9\%\\\hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\\hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\\hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\\hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\\hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\\hline\end{array}$

A) $29,800
B) $22,490
C) $30,820
D) $32,637

Question 72

If $2,000 is invested in an account with 5% interest compounding yearly, what will the balance of the account be after 6 years? Please refer to the following Future Value table:
$$\begin{array} {| r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\\text { Value of } \\\text { s1 }\end{array} & & & & \\\hline & 4 \% & 5 \% & 6 \% & 7 \% \\\hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\\hline 4 & 1.170 & 1.216 & 1.262 & 1.311 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.501 \\\hline\end{array}$$

A) $1,340
B) $2,680
C) $2,676
D) $2,432

Question 73

If Arthur Godfried invests $1,000 today at a rate of 7% compounding yearly, what will the value of the investment be in 4 years?
$\begin{array}{|c|c|c|c|c|c|c|}\hline\text { Future } \\\text { Value of } \\\$ 1\\\hline&4\%&5\%&6\%&7\%&8\%&9\%\\\hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\\hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\\hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\\hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\\hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\\hline\end{array}$

A) $1,311
B) $1,967
C) $1,316
D) $1,000

Question 74

If $1,000 is invested in an account with 4% interest compounding yearly, what will the balance of the account be after 4 years? (You may ignore small differences that result from rounding.)

A) $1,218
B) $1,170
C) $1,040
D) $1,240

Question 75

Billy Pierce invests $1,000 at the end of each year for 5 years at 9%. What is the future value of the investment?
$\begin{array}{|r|r|r|r|r|r|r|}\hline\text { Future } \\\text { Value of an} \\\text { Annuity of }\\\$ 1\\\hline & 4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \\\hline 1 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 & 1.000 \\\hline 2 & 2.040 & 2.050 & 2.060 & 2.070 & 2.080 & 2.090 \\ \hline 3 & 3.122 & 3.153 & 3.184 & 3.215 & 3.246 & 3.278 \\\hline 4 & 4.246 & 4.310 & 4.379 & 4.440 & 4.506 & 4.573 \\\hline 5 & 5.416 & 5.526 & 5.637 & 5.751 & 5.867 & 5.985 \\\hline 6 & 6.631 & 6.802 & 6.976 & 7.153 & 7.336 & 7.523 \\\hline 7 & 7.898 & 8.142 & 8.394 & 8.654 & 8.929 & 9.200 \\\hline 8 & 9.214 & 9.549 & 9.897 & 10.26 & 10.64 & 11.03 \\\hline 9 & 10.58 & 11.03 & 11.49 & 11.98 & 12.49 & 13.02 \\\hline 10 & 12.01 & 12.58 & 13.18 & 13.82 & 14.49 & 15.19 \\\hline\end{array}$

A) $5,985
B) $1,250
C) $4,599
D) $7,523

Question 76

John Doe wins the lottery and may pick from the following three choices:
Take $750,000 now.
Take $1,000,000 ten years from now.
Take $90,000 at the end of this year, and at the end of each following year for ten installments
In total.
Assume that John Doe uses a discount rate of 5% to evaluate his choices. If he selects the third option, how much is the present value of that alternative?
$\begin{array}{|c|c|c|c|c|c|c|}\hline \text {Present}\\\text {Value of}\\\text {an}\\\text {Annuity of}\\\$ 1\\\hline&5\%&6\%&7\%&8\%&9\%&10\%\\\hline 1& 0.952 & 0.943 & 0.931 & 0.926 & 0.917 & 0.909 \\\hline2 & 1.859 & 1.833 & 1.808 & 1.783 & 1.759 &1.736 \\\hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 &2.487 \\\hline 4& 3.546 & 3.465 & 3.387 & 3.312 & 3.240 &3.170 \\\hline5 & 4.329 & 4.21 & 4.100 & 3.993 & 3.890 &3.791 \\\hline6 & 5.076 & 4.917 & 4.767 & 4.623 & 4.486&4.355 \\\hline7 & 5.786 & 5.581 & 5.389 & 5.206 & 5.033 &4.868 \\\hline 8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535 &5.335 \\\hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 &5.759 \\\hline 10& 7.722 & 7.360 &7.024 & 6.710 & 6.418 &6.145 \\\hline\end{array}$

A) $814,000
B) $900,000
C) $694,980
D) $798,000

Question 77

If Teddy Godfried invests $10,000 today in an account compounding yearly, and he wants his money to at least double within 10 years, what interest rate is needed?
$\begin{array}{|c|c|c|c|c|c|c|}\hline\text { Future } \\\text { Value of } \\\$ 1\\\hline&4\%&5\%&6\%&7\%&8\%&9\%\\\hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\\hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\\hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\\hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\\hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\\hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\\hline\end{array}$

A) 5%
B) 6%
C) 7%
D) 8%

Question 78

If $1,000 is invested in an account with 9% interest compounding yearly, approximately how many years will it take for the amount to double? Please refer to the following Future Value table:
$\begin{array}{|r|r|r|r|r|r|r|}\hline \text {Future}\\\text {Value of}\\\$1\\\hline&4 \% & 5 \% & 6 \% & 7 \% & 8 \% & 9 \%\\\hline 1 & 1.040 & 1.050 & 1.069 & 1.07 & 1.080 & 1.090 \\\hline 2 & 1.082 & 1.103 & 1.124 & 1.14 & 1.160 & 1.188 \\\hline 3 & 1.125 & 1.158 & 1.191 & 1.22 & 1.260 & 1.295 \\\hline 4 & 1.170 & 1.216 & 1.26 & 1.311 & 1.360 & 1.412 \\\hline 5 & 1.217 & 1.276 & 1.33 & 1.40 & 1.469 & 1.539 \\\hline 6 & 1.265 & 1.340 & 1.419 & 1.501 & 1.587 & 1.677 \\\hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 & 1.828 \\\hline 8 & 1.369 & 1.477 & 1.594 & 1.719 & 1.851 & 1.993 \\\hline 9 & 1.423 & 1.551 & 1.689 & 1.839 & 1.999 & 2.172 \\\hline 10 & 1.480 & 1.629 & 1.791 & 1.967 & 2.159 & 2.367 \\\hline\end{array}$

A) Slightly more than 8 years
B) Exactly 9 years
C) 5 years
D) Slightly less than 7 years

Question 79

Which of the following describes the term time value of money?

A) Money can only be used at certain times and for certain purposes.
B) Money loses its purchasing power over time through inflation.
C) Wasted time can result in wasted money.
D) When money is invested over time, it earns income and grows.

Question 80

Which of the following MOST accurately describes the term annuity?

A) An investment which grows in value over time
B) An installment loan with amortizing principal payments
C) A stream of equal installments of cash payments
D) A term life insurance policy