AGEC 330 FINAL EXAM
T
Real Prices are the prices that reflect today's purchasing power at a specific point in time.
degree to which the net present value reacts to changes in a single variable.
Sensitivity analysis helps you determine the:
T
Suppose an investment has a life of 3 years, an after-tax discount rate of 10%, and an after-tax terminal value of $60,800. The present value of the after-tax terminal value is $45,680.
T
Suppose an investment has a life of 3 years, an after-tax discount rate of 10%, and net returns of $12,800 per year. The present value of the after-tax net returns is $31,832.
F
Suppose an investment has a life of 3 years, an after-tax discount rate of 10%, and tax savings from depreciation of 1,067 per year. The present value of tax savings from depreciation is $3,201.
T
Suppose an investment has a life of 4 years, an after-tax discount rate of 12%, and net returns of $15,000 per year. The present value of the after-tax net returns is $45,560.
F
Suppose an investment has a life of 5 years, an after-tax discount rate of 15%, and net returns of $15,000 per year. The present value of the after-tax net returns is $75,000.
$19,059
Suppose that the initial cost of an investment is $75,000, the present value of tax saving from depreciation is $2,000, and the present value after tax terminal value is $30,000. It is expected that an investment will increase yield and thus operating receipts by $15,000 per year but it will cost $5,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 12% while the marginal tax rate over the next 5 years is 20%. What is the break-even price of operating receipt?
T
The two indices to measure inflation are the Consumer Price Index (CPI) and the Gross Domestic Product (GDP) Deflator.
sensitivity
To ascertain whether the accuracy of the variable cost estimate for a project will have much effect on the final outcome of the project, you should probably conduct _____ analysis.
F
Inflation is the decrease in the general price level.
F
If the net present value is positive then you have made an unacceptable investment.
T
Inflation is an increase in the general level of prices for all goods and services in an economy.
1=C=12972 2=A=10383
A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 4% and the marginal tax rate is 20%. (i) What is the nominal net return at the end of year 2? a. $12,000 b. $14,400 c. $12,972 d. $11,520 (ii) Calculate the nominal after-tax net return at the end of year 2. a. $10,383 b. $13,824 c. $14,400 d. $17,280
1=C=27783 2=D=23338
A farmer expects irrigation system will increase real operating receipts by $32,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 5% and the marginal tax rate is 20%. (i) What is the nominal net return at the end of year 3? a. $29,172 b. $22,800 c. $27,783 d. $24,000 enter response here:[i] (ii) Calculate the nominal after-tax net return at the end of year 4. a. $28,800 b. $27,360 c. $34,560 d. $23,338
$430
A rancher is interested in purchasing land the initial cost of the land is $43,000. The IRS is going to allow the rancher to depreciate his investment using straight-line over 12 years with a marginal tax rate of 12%. What is the tax savings from depreciation?
1200
A rancher is interested in purchasing land the initial cost of the land is $60,000. The IRS is going to allow the rancher to depreciate his investment using straight-line over 10 years with a marginal tax rate of 20%. What is the tax savings from depreciation?
T
Cash flows stated in real dollars over time can be converted to nominal dollars.
F
If the before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 15.36%.
T
It is important to determine the acquisition cost of depreciable assets because it represents the cost basis for annual depreciation charges.
F
Nominal Prices are the prices as you observe them.
T
Nominal Prices are the prices as you observe them.
T
Nominal cash flows are discounted with a nominal discount rate.
F
Nominal cash flows should be discounted with a real discount rate.
T
Payback Period is the length of time required for an investment to recover the initial outlay of funds.
F
The only way to measure inflation is by the Consumer Price INDEX
$38,949.19 25,000(1+.03)^15
What is the nominal price of a truck in 15 years if the real price is $25,000, and the inflation rate is 3%?
1.34 1(1+.03)^10=1.34
What is the nominal price of an apple in 10 years if the real price is 1$, and the inflation rate is 3%?
$113,987.67 150,000(1+.04)^-7
What is the real price of a tractor in 7 years if the real price is $150,000, and the inflation rate is 4%?
Decrease in the general price level
Which of the followings has nothing to do with inflation?
Real Prices
___________ are prices that reflect today's purchasing power.
