Question 1

-Refer to Figure above. What is Dan's total profit assuming he is producing both products at their profit-maximizing sales quantities?

Accepted Answer

A)  $3,600 
B)  $4,000 
C)  $4,400 
D)  $4,500 B

Question 2

Suppose you borrow $1,000 at 8% for 2 years. If the interest is compounded annually, how much money will you owe at the end of those 2 years?

Accepted Answer

A)  $1,080.00 
B)  $1,160.00 
C)  $1,166.40 
D)  $1,345.60 C

Question 3

-Refer to Scenario above. What is the net present value of the decision to go to invest in college?

Accepted Answer

A)  $10,742.71 
B)  $11,141.18 
C)  $11,655.84 
D)  $12,088.18 C

Question 4

If a bank is lending money at 6.25% while the government is lending money at 8.25% and the rate of inflation is 3.5%, what is the real interest being earned by the bank?

Accepted Answer

A)  2.00% 
B)  2.66% 
C)  2.75% 
D)  6.25%

Question 5

Suppose the interest rate is 6% and compounded annually. What is the present discounted value of 6 monthly payments of $150?

Accepted Answer

A)  $855.00 
B)  $877.50 
C)  $884.46 
D)  $900.00

Question 6

-Refer to Scenario above. What is Jennifer's opportunity cost of one year of college?

Accepted Answer

A)  $12,000 
B)  $17,000 
C)  $35,000 
D)  $47,000

Question 7

Suppose you make a $5,000 investment that will return $3,000 in year 2 and another $3,500 in year 4. With an interest rate of 4.5%, what is the NPV of this project?

Accepted Answer

A)  $247.34 
B)  $682.15 
C)  $1,500.00 
D)  $2,162.50

Question 8

-Refer to Figure above. If he only produced gloves, what would Dan's profit be if he produces the profit-maximizing quantity?

Accepted Answer

A)  $2,000 
B)  $2,200 
C)  $2,500 
D)  $3,100

Question 9

Assume the interest rate is 5%. What is the present discounted value of a $1,000 bond that pays a $50 coupon each year for 10 years?

Accepted Answer

A)  $989.91 
B)  $999.91 
C)  $1,000.00 
D)  $1,009.99

Question 10

The Table below shows net cash flows for 3 mutually exclusive projects from which a company can choose. Each project requires an investment in the first year, then produces a positive net cash flow for each of the following four years. Assuming an interest rate of 5%, which project would the company choose?
 Does the best project have the highest total net cash flow?
 The shortest payback period?

Accepted Answer

The answer of The Table below shows net cash flows...

Question 11

Suppose you lend $2,500 at 11.5% for 3 years. If the interest is compounded annually, how much interest will you receive in those 3 years?

Accepted Answer

A)  $862.50 
B)  $965.49 
C)  $3,362.50 
D)  $2,465.49

Question 12

If the real interest rate is 7.5% and the rate of inflation is 3%, what is the nominal interest rate?

Accepted Answer

A)  4.50% 
B)  4.57% 
C)  10.50% 
D)  10.73%

Exam 5: Choices Involving Time and Profit Maximization