Deck 8: Non Financial Investments

Question 1

Which of the following is not a reason to purchase a durable good?

A) To take advantage of a technological improvement with the potential to make household maintenance more time-efficient.
B) Physical wear and tear that results in an existing durable having reached the end of its useful life.
C) A change in circumstances.
D) To attempt to minimize risk.
E) All of the above are reasons to purchase a durable good.

Answer 1

D

Question 2

Under which of the following are decisions are made by looking at the investment's risk and return characteristics on a stand-alone basis?

A) Individual asset basis.
B) Within activity basis.
C) Fully integrated basis.
D) Both a and b.
E) Both b and c.

Answer 2

A

Question 3

What distinguishes a house from most durable goods?

A) It has no unique physical characteristics.
B) It does not last long.
C) It has no tax benefits.
D) It has appreciation potential.
E) None of the above.

Answer 3

D

Question 4

Which of the following would cause the Profitability Index to be higher?

A) Higher NPV.
B) Higher Cost.
C) Lower NPV
D) Both a and b.
E) Both b and c.

Question 5

Which of the following is not a use of home ownership?

A) Providing shelter.
B) Short-term investment.
C) Providing pleasure to its occupants.
D) All of the above are uses of home ownership.
E) Both b and c are not uses of home ownership.

Question 6

What type of human-related assets is personal finance principally interested?

A) Assets that derive their value from particular people.
B) Assets that generate income.
C) Assets in which ownership is represented and traded solely through pieces of paper.
D) All of the above.
E) None of the above.

Question 7

Which of the following is not a major factor when deciding to change automobiles?

A) State of current car.
B) Existing finances.
C) Current car promotion.
D) Attractiveness of new car.
E) All of the above are major factors.

Question 8

Which of the following household assets are for future use?

A) Real estate.
B) Durable goods.
C) Financial.
D) All of the above.
E) Both a and c.

Question 9

Which of the following is inapplicable to human assets?

A) It is a resource that reflects the current value of all our future earnings.
B) It is a nonmarketable asset.
C) It is often rented to an employer for a period of time.
D) All of the above are applicable to human assets.
E) A and c are applicable to human assets.

Question 10

Real assets differ from financial assets as:

A) Real assets generally decline in value over time while financial assets often maintain or increase in value over time.
B) Financial assets generally decline in value over time while real assets often maintain or increase in value over time.
C) Real assets are generally used in the household currently while financial assets may be reserved for future use.
D) Both b and c.
E) Both a and c.

Question 11

Which of the following is never used as an alternative name for real assets?

A) Tangible assets.
B) Physical assets.
C) Hard assets.
D) All of the above are alternative names.
E) Only a and c are alternative names.

Question 12

Which of the following ranges reflects total home ownership rates in 2004?

A) 20-30%
B) 30-40%
C) 40-50%
D) 50-60%
E) 60-70%

Question 13

Which of the following best describes financial assets?

A) Assets in which ownership is represented and traded solely through pieces of paper.
B) Assets that can be sold currently in a public forum for fair value at low transaction costs.
C) Assets that you can see or touch that have market value.
D) All of the above.
E) None of the above.

Question 14

What is the Internal Rate of Return?

A) The Net Present Value.
B) The rate of return that makes the present value of cash inflows greater than that of cash outflows.
C) The rate of return that makes the present value of cash inflows equal to that of cash outflows.
D) Both a and b.
E) None of the above.

Question 15

Which of the following is a major difference between IRR and NPV?

A) NPV assumes that cash flows from projects are invested at the required rate of return while IRR assumes they are reinvested at the rate of return of that particular project.
B) IRR assumes that cash flows from projects are invested at the required rate of return while NPV assumes they are reinvested at the rate of return of that particular project.
C) NPV also gives multiple answers under some circumstances.
D) Both a and b.
E) Both b and c.

Question 16

Project A has NPV of $45 million while project B has NPV of $54.5 million. If the cost of project A is $33 million and the cost of project B is $22 million, which project should be chosen if only one can be chosen?

A) Project A.
B) Project B.
C) Neither.
D) Both.
E) Answer varies, depending on inflation.

Question 17

Which of the following is the NPV?

A) (Sum of Future Cash Flows / Discount Rate) - Cash Outflow in Current Period.
B) Present Value of Future Cash Inflows - Cash Outflow in Current Period.
C) (Sum of Future Cash Flows / Discount Rate) + Cash Outflow in Current Period.
D) Either a and b.
E) Both b and c.

Question 18

When calculating the NPV, what discount rate should we use?

A) A discount rate equal to the investment return that could be earned on nonmarketable securities with similar risk characteristics.
B) A discount rate equal to the investment return that could be earned on marketable securities with similar risk characteristics.
C) A discount rate equal to the investment return that could be earned on low-risk marketable securities.
D) A discount rate equal to the investment return that could be earned on high-risk nonmarketable securities.
E) None of the above.

Question 19

Upon sale, how much gain per couple is tax free?

A) 25%
B) 50%
C) $250,000
D) $500,000
E) None of the above.

Question 20

What are capital expenditures?

A) Outlays for financial assets.
B) Outlays that provide benefits over an extended period of time.
C) Outlays that can be used for purchasing new assets but not improving existing ones.
D) Both a and b.
E) Both b and c.

Question 21

The higher one's tax bracket,

A) The greater the "government subsidy" for tax-deductible real estate taxes and interest expense.
B) The lower the "government subsidy" for tax-deductible real estate taxes and interest expense.
C) The greater the amount of non-mortgage debt outstanding.
D) The lower the amount of non-mortgage debt outstanding.
E) None of the above.

Question 22

Which of the following is an advantage associated with renting a dwelling?

A) Mandatory repayment of debt.
B) The necessity of a capital commitment.
C) Flexibility in changing your dwelling site.
D) Both a and b.
E) Both b and c.

Question 23

The mortgage payments for a house you are considering purchasing are $2,500 a month and the taxes and insurance on the home are $7,300 per year. You earn $100,000 per year before taxes and had no other debt. Can you qualify for the bank loan and afford the home?

Question 24

Which of the following durable goods is discretionary?

A) Sports.
B) Traveling.
C) Childcare.
D) Both a and b.
E) Both b and c.

Question 25

What factors influence home affordability and whether the purchase of a home is realistic? For each, provides details as to why it is included on the list.

Question 26

The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should not exceed:

A) 14 percent of your total income.
B) 42 percent of your total income.
C) 28 percent of your total income.
D) 36 percent of your total income.
E) None of the above.

Question 27

Dorothy owns a home that was worth $1,400,000 at the beginning of the year and $1,135,000 at year's end. The same house can be rented for $152,300 per year. Upkeep is $27,500 per year. What is Dorothy's return for the year?

Question 28

Is leasing presented as a liability on the household's balance sheet?

A) Yes.
B) No.
C) No, unless the household is attempting to qualify for a new loan.
D) Yes, unless the household is attempting to qualify for a new loan.
E) None of the above.

Question 29

What is the Return on House for Period?

A) (Increase in House Value During Period - Rent Not Paid - Cost of Upkeep)/Market Value of House Beginning of Period.
B) (Increase in House Value During Period - Rent Not Paid - Cost of Upkeep)/Market Value of House End of Period.
C) (Increase in House Value During Period + Rent Not Paid - Cost of Upkeep)/Market Value of House Beginning of Period.
D) (Increase in House Value During Period + Rent Not Paid - Cost of Upkeep)/Market Value of House End of Period.
E) None of the above.

Question 30

Which of the following is not an economic reason for leasing?

A) The lessor may absorb the risk of technological or fashion obsolescence or large unforeseen expenditures on the asset.
B) The lessor is sometimes able to develop efficiencies in specializing in that asset.
C) The business owner may receive tax benefits that the lessor will not.
D) All of the above are economic reasons for leasing.
E) None of the above is an economic reason for leasing.

Question 31

Which of the following factors makes auto leasing less attractive than ownership?

A) Selling an automobile is time-costly.
B) Inspection standards.
C) Mileage charges.
D) Both a and b.
E) Both b and c.

Question 32

Which of the following is not a disadvantage of home ownership?

A) Its lack of short-term liquidity should immediate sale become necessary.
B) The responsibility for maintaining the home and grounds; and
C) The noncyclical nature of home prices over shorter periods of time.
D) All of the above are disadvantages of home ownership.
E) None of the above is a disadvantage of home ownership.

Question 33

Which of the following is the principal purpose of purchasing durable goods?

A) To reap the benefits from the items directly.
B) To benefit from their appreciation in value.
C) To benefit from the tax deduction the government provides.
D) All of the above.
E) None of the above.