TAMU AGEC 330 with Leatham

Annual Depreciation (D) is multiplied by the marginal tax rate to get the tax savings from depreciation.

True

Bonds promise a field period payment and returns principal at maturity.

True

Bonds promises a fixed period payment and returns principal at maturity.

True

Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

True

Budgeting Methods are used to evaluate the future directions of a firm.

True

Budgeting methods are used to evaluate the future directions of a firm.

True

Cash flows stated in real dollars over time can be converted to nominal dollars

True

Certainty- equivalent is defined by the certain amount of cash return that gives the same utility as a risky amount of cash return.

True

Ceteris paribus, an increase in the exchange rate, that is, the price of buying foreign currency in terms of domestic currency, leads to an increase in net exports

True

Ceteris paribus, an increase in the exchange rate, this is, the price of buying foreign currency in terms of domestic currency, leads to an increase in next exports.

True

Compounding converts a present amount into an equivalent future amount.

True

Discounting convert a future amount into an equivalents present amount?

True

Discounting converts a future amount into an equivalent present amount

True

Farm land is considered as a non-depreciable asset

True

Farm land is considered as a non-depreciable asset.

True

Financial Management involves the acquisition and use of financial resources be economics units and the protection of the units' equity capital from business and financial risk.

True

Financial management involves the acquisition and use of financial resources by economics units and the protection of the units' equity capital from business and financial risk.

True

Fully Amortized loan implies and equal periodic payment including principal and interest.

True

Fully amortized loan implies an equal periodic payments including principal and interest

True

Highly non liquid assets cannot be readily converted to cash without a substantial loss in value to the firm?

True

If a loan is fully amortized it will have an equal periodic payment including principal and interest

True

If a loan is fully amortized it will have an equal periodic payment including principle and interest

True

If a loan is fully amortized it will have unequal periodic payments including principal and interest

True

If the net present value is negative then you have made an unacceptable investment

True

In general, greater expected profits require greater risk when making financial decisions.

True

In terms of accountability for taxes and financial feasibility, nominal cash flows are more accurate than real cash flows

True

In the context of profitability, an investment is acceptable if the Net Present Value is zero or greater

True

In the context of the profitability, an investment is acceptable if the net present value is zero or greater

True

Income generating, cost reduction, and maintenance and replacement, are categories of alternative investments

True

Income taxes due on the closing balance sheet should come directly from that year's income statement

True

Inflation is an increase in the general level of prices for all goods and service in an economy

True

Interest can be deducted from taxable income

True

Interest on a business loan is tax deductible

True

Interst payment on a fully amortized loan decline over the life of the loan

True

It is best to layout cash flows using a time line

True

Land is an asset that does not depreciate

True

Liquidity refers to the ability to generate cash to meet demands as they occur and to provide both anticipated and unanticipated events. The firm's need for liquidity is closely tied to its risk position; the occurrence of risks is one need for liquidity.

True

Net Cash flow is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income

True

Net Cash flows is calculated as the after-tax net return plus the annual depreciation multiplied by the marginal tax rare

True

Nominal cash flows should be discounted with the nominal discount rate

True

Nominal cash flows should be discounted with the nominal discount rate.

True

Nominal prices are the prices as you observe them

True

Principal payments on a fully amortized loan increases over the life of the loan

True

Proforma Statements can be used to create a business plan.

True

Proforma statements can be used to create a business plan

True

Rate of inflation is the percentage rate of increase in inflation

True

Rate of inflations is the percentage rate of increase in inflation

True

Real cash flows can be discounted by a real discount rate only

True

Real prices are the prices with the general price level effect removed.

True

Risk-adjusted discount rate is the rate established by adding a risk premium to the risk-free are when investments are known to be risky and the investor is risk averse

True

Sensitivity of the investment to a variable can be measured by the steepness of the slope

True

Simple interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction

True

Simple interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction.

True

Suppose an investment has a life of 3 years, an after-tax discount rate of 10% and net returns of $12,800 per year. Te present value of the after-tax net returns is $31,832

True

Suppose and 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 $50,282

True

Terminal Value is the value of an investment at the end of the planning horizon

True

Terminal value is the value of an investment at the end of the planning horizon

True

The 150% declining balance method is used in depreciating for most classes of depreciable farm and ranch assets.

True

The Net Cash Flows is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income

True

The Net Present Value can be calculated as the PV( Cash Outflows) where cash flows are discounted at the required rate of return on an investment.

True

The Net Present Value is an investments profit over the required return to capital.

True

The Net Present can be calculated as the PV(Cash Inflows)- PV(Cash Outflows) where cash flows are discounted at the required rate of return on an investment

True

The USPV factor assumes a finite number of periods

True

The USPV factor assumes a finite number of periods.

True

The book value of a contract is the future payments of any contract discount at the contractual rate

True

The book value of a contract is the future payments of any contract discounted at the contract rate.

True

The cash flow budget is a project of all the cash transactions relating to the business that occur during the accounting period, usually one year:

True

The cash flow budget is a projection of all the cash transactions relating to the business that occur during the accounting period, usually one year.

True

The future value is higher if one dollar today is compounded monthly rather than annually, holding everything else constant

True

The initial focus of FFSC was to develop recommended guidelines and standards for farm financial reporting for use by internal managers and by external audiences such as lenders and investors

True

The net cash flow is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income.

True

The net present value can be calculated as the PV (Cash Inflows)- PV (Cash Outflows) where cash flows are discounted at the required rate of return on an investment

True

The net present value is an investment profit over the required return to capital

True

The net present values an investment profit over the required return to capital

True

The planning horizons for agricultural firms typically extend over a long period of time. When long planning horizons, the level and timing of profits will influence the present wealth of the firm. The profitability goal is often expressed as discount present values of projected earnings?

True

The present value is lower if one dollar in the future is discounted monthly rather than annually, holding everything else constant.

True

The present value will be less if the interest rate in a u form annuity is greater, holding everything else constant

True

The present value will be less if the interest rate in a uniform annuity is greater, holding everything else constant

True

The price of bonds goes up an interest rates go down.

True

The price of bonds goes up as interest rates go down.

True

The real interest rate accounts for the time value of money

True

The real interest rate accounts for the time value of money.

True

The standard deviation is the amount of dispersion or variation about the expected value?

True

The tax savings from Depreciation is added to the cash flows when calculating the NPV using the component method.

True

The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment.

True

The terminal value that should be used in calculating depreciation for capital budgeting is zero.

True

To check financial feasibility, we only need to look at NCF (net cash flow before debt)

True

When finding the present value of tax savings from depreciation it is important to use after-tax discount rate

True

When finding the preset value of tax savings from depreciation is it important to use the after-tax discount rate.

True

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the loan

True

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the loan.

True

Yield calculates as the discount rate that makes the present value of cash inflows equal to the present value cash outflows.

True

Yield is calculated as the discount rate that makes the present value of cash inflows equal to the present value of cash outflows

True

in general, greater expected profits require greater risk when making financial decisions

True

nominal cash flows should be discounted with the nominal discount rate

True

the price of bond and the interest rate are inversely related.

True

Future Semiconductors is evaluating a new etching tool. The equipment costs $1.om and will generate after-tax cash inflows of $0.4m per year for six years. Assume the firm has a 15% cost of capital. What's the NPV of the investment?

$0.51m

A machine is purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable like is 12 years, the life of the machinery is 14 years and straight-line depreciation is used?

$1,0.....

A machine is purchased for $12,000 and the marginal tax rate us 20%. What is the taxable depreciation in the 10th yeas if the depreciable life is 12 years, the life of the machinery is 24 years and straight- line depreciation is used?

$1,000

A machine purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable life is 12 years, the life of the machinery is 14 years and the straight-line depreciation is used?

$1,000

Consider a bond with a Par Value of $1000. It pays a coupon of 12% and the coupon is paid annually. It matures in 10 years calculate the market value of the bond if market rate is 10%

$1,122.89

Consider a bond with a par value of $1,000. it pays a coupon of 12% and the coupon is paid annually. it matures in 10 years. Calculate the market value of the bond if the market rate is 10%

$1,122.89

What would you be willing to pay for an annuity that paid you $175 at the end of each of the next 20 years? Assume savings account pays 8% compounded annually.

$1,718

What would you be willing to pay for an annuity that paid you $175 at the end of the next 20 years? Assume savings account pays 8% compounded annually?

$1,718

Suppose you are considering the purchase of a new truck for $55,000. It can be financed over 10 years. Calculate the quarterly payments if the annual interest rate is 6% compounded quarterly and the payments are uniform (equal quarterly payments including principal and interest)

$1,838.49

Suppose you are considering the purchase of a new truck for $55,000. it can be financed over 10 years. Calculate the quarterly payments if the annual interest rate is 6% compounded quarterly and the payments are uniform.

$1,838.49

What would you be willing to pay for an annuity that paid you $450 at the end of each of the next 6 years? Assume savings account pays 10% compounded annually.

$1,960

What would you be willing to pay for an annuity that paid you $450 at the end of the next 6 years? Assume savings account pays 10% compounded annually?

$1,960

What is the real price of an apple in 5 years if the nominal price is $1.16 and the inflation is 3%

$1.00

What is the nominal price of an apple in 10 years if the real price is $1, and the inflation rate is 3%

$1.34

What is the nominal price of an orange in 5 years if the real price is $1.50, and the inflation rate is 4%

$1.82

Suppose a parcel of land promises to return $750 per acre. What is the capitalized value of the land if the interest rate is 7%?

$10,714.29

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 7%.

$10,714.29

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 7%?

$10,714.29

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate 13.6%. One annuity pays $9700 on the first day of each year for 36 years. How much does the second investments pay each year for 36 years if it pays at the end of each year?

$11,019.20

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 13.60% One annuity pays $9,700 on the first day of each year for 36 years. How much does the second investment pay each year for 36 years if it pays at the end of each year?

$11,019.20

A five year project if undertaken will require an initial investment of $500,000. the discount rate is 5% and the expected end-of- year cash flows are: Year1: $120,000 2: $120,000 3: $150,000 4. $150,000 5. $180,000

$117,145

With an initial cost present value of $850,000 after-tax net present value of $764,500, a present value of tax savings from depreciation of $225,000 and a present value after-tax terminal of $575. What is the net present value?

$140,075

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 5%?

$15,000

Consider a bond with a par value of $1,000, it pays a coupon of 12% and the coupon is paid monthly. it matures in 10 years. Calculate the npv if the bond yield on the bond is 11% and the price of the bond is $892.66

$167.84

Consider a bond with a par value of $1,125. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. What is the NPV if the yield on the bond is 11% and the price of the bond is $892.66

$167.84

If you invest $150 and earn a rate of return of 12% how much money will you have in one year?

$168

If you invest $150 and earn a rate of return of 12%, how much money will you have in one year?

$168

If you ca near 8% on your money, how much should you pay today for an investment that promises to pay $225 in three years.

$178.61

If you can earn 8% on your money, how much should you pay today for an investment that promises to pay $225 in three years (Market Value)?

$178.61

A farmer bought a tractor costing $200,000, with a useful life of 10 years and a projected salvage value of $18,000. Calculate the annual depreciation charge using the straight-line method

$18,200

If you invest $175 and earn a rate of return of 11% how much money will you have in one year?

$194.25

If you invest $175 and earn a rate of return of 11%, how much money will you have in one year?

$194.25

Jaime and Tryion purchased a new combine for $56,000. Assume a 7-year useful life and no salvage value. Calculate the depreciation for year 7 using the sum-of-the-years'-digits

$2,000

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the sum-of-the-years'-digits.

$2,000

If you borrow $15,000 and pay it pack in 13 equal annual payments at 9% interest. What are the annual payments?

$2,004

if you borrow $15,000 and pay it back in 13 equal annual payments (principal and interest) at 9% interest. What are the annual payments?

$2,004

What is the future value of $1,000 today if it draws interest at 8% compounded annually for 10 years?

$2,159

Suppose you are going to purchase an investment that costs $40,000 with a life of three years. You anticipated that the marginal tax rate will be 20% over the next three years. The IRS will allow you to depreciate this investment over 7 years. you require at least a 15% pretax rate of return on capital. What is the present value of tax savings from depreciation?

$2,745

Suppose you plan to replace a truck in 7 years and it will cost you $27,000. How much money would you need to put into your saving account at the end of the next 7 years to achieve this goal if the interest rate is 10%

$2,846

Suppose you plan to replace a truck in 7 years and it will cost you $27,000. How much money would you need to put into your savings account at the end of the next 7 years to achieve this goal if the interest rate is 10%?

$2,846

Consider a band with a par value of $2,000. it pays a coupon of 12% and the coupon is paid monthly. It matures in 12 years. What is the coupon payment?

$20

Consider a bond with a par value of $2,000. It pays a coupon of 12% and the coupon is paid monthly. It matures in 12 years. What is the coupon payment.

$20

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually

$20,395.49

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$20,395.49

Calculating the present value of a retirement fund if you out $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$20,395.49

Given the following information: -initial loan amount $52,000 -the loan will be fully amortized in 3 years at 10% -marginal tax rate is 15% What is the value of a loan payment per period?

$20,909.97

An investor wants to do a capital budgeting for his new investment project. He has the following info: The marginal tax rate will be 15% over the next 5 years and it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $20,000 at the end of 4 years. What is the after-tax terminal value of this investment if the initial cost is $50,000?

$21,500

Calculate the present value of a retirement fund if you put $1,750 in your saving account at the beginning of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$22,077.13

Calculating the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each of the next 35 years? Assume that your savings account pays 8% compounded annually

$22,077.13

If you invest $200 and earn a rate if return of 10% how much money will you have in 1 year?

$220

If you invest $200 and earn a rate of return of 10%, how much money will you have in 1 years?

$220

What is the nominal price of a tractor in 7 years if the real price is $200,00 and the inflation rate is 4%

$263,186.36

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over 5 years with no down payment. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform (equal monthly payments including principal and interest)

$290

Suppose you are considering the purchase of a special livestock trailer for$15,000. It can be financed over five years with no down payments. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform.

$290

Suppose you are going to purchase an investment that costs $35,000 with a life of 3 years. You anticipating that the marginal tax rate will be 25% over the next three years. The IRS will allow you to depreciate this investment over 7 years. You require at least a 15% pretax rate of return on capital. What is the present value of tax savings from depreciation?

$3,041

How much money would you have in your bank account in 10 years if $200 is deposited at the end of the years for each of the next 10 years? Suppose that savings account pays 10% compounded annually.

$3,187.48

How much money would you have in your bank account in 10 years if the $200 is deposited at the end of the year for each of the next 10 years? Suppose that savings account pays 10% compounded annually

$3,187.48

Suppose you are considering the purchase of an investment. The net returns for this investment is $5,000. Given the marginal tax rate is 28% what is the after-tax net returns?

$3,600

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $72,000 -the loan will be fully amortized in 3 years at 13% -marginal tax rate is 18% What is the value of a loan payment per period?

$30,493.58

What is the NPV of an investment that costs $175 promises to pay $250 in two years and the rate of return on comparable investments is 10%

$31.61

What is the npc of an investment that costs $175, promises to pay $250 in two years, and the rate of return on comparable investments at 10%

$31.61

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% What is the value of a loan payment per period?

$36,638.71

How much money will be in a saving account in 15 years if $150 is deposited today and it earns 6% compounded quarterly?

$366.48

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded quarterly?

$366.48

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded monthly

$368.11

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded monthly?

$368.11

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 20% over next 5 years and it will be 15% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 6 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$37,606

What is the nominal price of a truck in 15 years if the real price is $25,000 and the inflation is 3%

$38,949.19

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 20% over next 5 years and it will be 15% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 4 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$39,200

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 10% over next 5 years and it will be 20% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 4 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$39,600

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate IS 11.6%. ONE ANNUITY PAYS $3900 ON THE FIRST DAY OF EACH YEAR FOR 28 YEARS. HOW MUCH DOES THE SECOND INVESTMENT PAY EACH YEAR for 18 years if it pays at the end of each year?

$4,352.40

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 11.60% One annuity pays $3,900 on the first day of each year for 18 years. How much does the second investment pay each year for 18 years if it pays at the end of each year?

$4,352.40

Suppose that the marginal tax rate is 15% If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase. the current operating expenses are $1,200. What is the annual after-tax net return generated by this investment for each year?

$4,560

Suppose that the marginal tax rate is 20%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $7,500 per year but it will cost $1,500 a year for maintenance. What is the annual after-tax net return generated by this investment for each year?

$4,800

Consider a bond with a par value of 41,125. it pays 8% annual and the coupon is paid semiannual. It matures in 10 year. What is the coupon payment.

$45

A farmer has been given the opportunity to become a part owner in a local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $5,000 each year from the firm's profits. In addition, the farmer will receive a discount on fertilizer and he believed discount will reduce his fertilizer costs by $2,000 per year. The farmer plans to retire in 20 years and thinks he can sell his equity in the theta. business for $60,000. (i) Calculate the market value of this investment of the market rate of return on comparable investments is 15% (ii) calculate the net presents value if the price of this investment is $30,000 and the farmer's required rate of return is 15% (discount rate) and state if this investment is acceptable (iii) calculate the yield on this investment if the price of this investment is $30,000 and state if this investment is acceptable if the required rate of return is 15%

$47,481 $17,48; acceptable 23.7%; acceptable

Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 12 years if the initial cost of an investment is $63,000. What is the tax saving value for each year?

$472.5

How much interest is gained if $250 is deposited in your bank account at the end of the year for each of the next 7 years? Savings account pays 8% compounded annually.

$480.70

How much interest is gained if $250 is deposited in your bank account at the end of the years for each of the 7 years? savings account pays 8% compounded annually.

$480.70

Suppose you are considering the purchase of an investment. The Net Returns for this investment is $5,000. Given the marginal tax rate is 28%, What is the pre-tax net returns?

$5,000

Suppose you are considering the purchase of an investment. The net returns for this investment is $5,000. Given the marginal tax rate is 28%, what is the pre-tax net returns?

$5,000

Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 12 years if the initial cost of an investment is $63,000. What is the annual depreciation expenses for tax purposes?

$5,250

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase, the current operating expenses and $1,200. What is the annual pre-tax net return generated by this investment for each year?

$5,700

Suppose that the marginal tax return is 15%. If a farmer decides to purchase a new tractor. It will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchases, the current operating expenses are $1,200. What is the annual pre-tax net return generated by this investment for each year?

$5,700

Consider a bond with a Par Value of $1125. It pays a coupon of 8% and the coupon is paid monthly. It matures in 8 years. The market rate is 10%. Calculate the book value of the bond.

$5,898.86

Consider a bond with a par value of $1,125. It pays a coupon of 8% and the coupon is paid monthly. It matures in 8 years. The mature rate is 10% Calculate the book value of the bond.

$5,898.86

What is the nominal price of an orange in 25 years if the real price is $3, an the inflation rate is 2.5%

$5.56

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $8,000 per year but it will cost $2,000 a year for maintenance. What is the annual prer-tax net return generated by this investment for each year?

$6,000

Suppose that the marginal tax rate is 20% If a farmer decides to purchase a new tractor. it will increase the operating receipts $7,500 per year but it will cost $1,500 a year for maintenance. What is the annual pre-tax net return generated by the investment for each year?

$6,000

When you retire, you want ti have $875,00 saved. If you plan to retire in 35 years, and you can receive 7% interest annually o a savings account, What is the Fixed amount you have to save each year?

$6,330

When you retire, you want to have $875,000 saved. If you plan to retire in 35 years, and you can receive 7% interest annually on a savings account. What is the fixed amount you have to save each year?

$6,330

Suppose you buy a tractor for $2,000, It is projected that the tractor will save you $500 a year over the next five years (end of year),. If your required rate of return is 7.5% should you buy the tractor?

Yes, since NPV= $22.94 > 0

Suppose that Jim plans to borrow money for an education at Texas A&M. Jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). AggieBank agrees to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, jim agrees to pay off the loan by borrowing from longhorn bank. longhorn bank will lend him the money he needs at an annual interest rate of 6%. Jim agrees to pay back the longhorn bank with 20 annual payments and the payments payments will be uniform (equal annual payments including principal and interest) (i) calculate how much money Jim has to bower at the end of 5 years to pay off the loan with AggieBank (ii) calculate the annual payment Jim must pay to the longhorn bank if the first payment is due at the end of the sixth year (one-year after borrowing the money from longhorn) (iii) calculate the total interest jim must pay because of borrowing money to attend TAMU

$6,376 $12,159 $97,360

Suppose that the initial cost of an investment is $50,000 the present value of tax saving from depreciation is $2,500 and the present value after tax terminal value is $40,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next four years is 25%. What is the break-even price of operating receipt?

$6,481

Assume that the marginal tax rate is 20%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 15 years. If the initial cost of an investment is $50,000. What is the annual depreciation expense for tax purposes?

$6,666.67

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 10.3%. One annuity pays $6300 on the first day of each year for 28 years. How much does the second investment pay each year for 28 years if it pays at the end of each year?

$6,948.90

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 10.30% One annuity pays $6,300 on the first day of each year for 28 years. How much does the second investment pay each year for 28 years if it pays at the end of each year?

$6,948.90

Suppose that the inflation rate is 5% and the real terminal value of an investment is expected to be $50,000 in 5 years. Calculate the nominal terminal value of the investment at the end of year 5

$63,814

Assume that the marginal tax rate is 15%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 10 years if the initial cost of an investment is $42,000. What is the tax saving value for each year?

$630

Assume that the marginal tax rate is 20%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 15 years. If the initial cost of an investment is $50,000. What is the tax saving value for each year?

$666....

Assume that the marginal tax rate is 20%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 15 years if the initial cost of an investment is $50,000. What is the tax saving value for each year?

$666.67

At the beginning of the year, Joseph Farmer purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment is $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. depreciation expense to be reported for the second year using the double-declining balance method is close to:

$7,250X

Suppose that the initial cost of an investment is $35,000 the present value of tax saving from depreciation is $1,500 and the present value after tax terminal value is $25,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next four years is 25%. What is the break-even price of operating receipt?

$7,390

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 8.5%. one annuity pays $7300 on the first day of each year for 18 years. How much ...........?

$7,920.50

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 8.50% One annuity pays $7,300 on the first day of each year for 18 years. How much does the second investment pay each year for 18 years if it pays at the end of each year?

$7,920.50

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculate the monthly debt payments if the annual interest rate is 3% compounded monthly ad the payments are uniform.

$718.75

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculate the monthly debt payments if the annual interest rate is 3% compounded monthly and the payments are uniform (equal monthly payments including principal and interest)

$718.75

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculate the monthly debt payments if the annual interest rate is 3% compounded monthly and the payments are uniform.

$718.75

Consider a bond with a Par Value of $1,000. It pays a coupon of a 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market value is 12%

$770.60

Consider a bond with a par value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market rate is 12%

$770.60

Jaime and Tryion purchased a new combine for $56,000. Assume a 7-year useful life and no salvage value. Calculate the depreciation for year 7 using the straight-line method

$8,000

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the straight-line method.

$8,000

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the double-declining balance.

$8,163X

Suppose you can put your money in a savings account that pays 7%, compounded annually. How much money would you have in your savings account in 27 years if you invested $1,350 today?

$8,389

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 16.4%. One annuity pays $7700 on the first day of each year for 11 years. How much does the second investment pay each year for 11 years at the end of each year?

$8,962.80

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 16.40% One annuity pays $7,700 on the first day of each year for 11 years. How much does the second investment pay each year for 11 years if it pays at the end of each year?

$8,962.80

A machine is purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable life is 12 years, the life of the machinery is 14 years and straight-line depreciation is used?

$800

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82,030.04

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82,030.40

Calculated the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82.030.04

Consider a bond with a Par value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually . It matures in 5 years. Calculate the value of the bond if the market rate is 15%.

$897.04

Consider a bond with a par value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually. it matures in 5 years. Calculate the market value of the bond if the market rate is 15%

$897.04

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost ( capital recovery) if interest rates are 12%?

$9,365

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost (capital recovery) if interest rates are 12%?

$9,365

What would you be willing to pay for an annuity that paid you $250 at the end of each of the next 5 years? Assume savings account pays 12% compounded annually

$901

What would you be willing to pay for an annuity that paid you $250 at the end of each of the next 5 years? Assume savings account pays 12% compounded annually.

$901

What would you be willing to pay for an annuity that paid you $250 at the end of the next 5 years? Assume savings account pays 12% compounded annually.

$901

What would you be willing to pay for an annuity that paid you $250 at the end of the next 5 years? Assume savings account pays 12% compounded annually?

$901

What is the NPV of an investment that costs $150 promises to pay $350 in three years and the rate of return on comparable investments is 12%

$99.12

What is the NPV of an investment that costs $150, promises to pay $350 in three years, and the rate of return on comparable investments is 12%

$99.12

What is the npv of an investment that cost $150, promises to pay $350 in three years, and the ate of return on comparable investments is 12%

$99.12

Calculating annual depreciation for capital budgeting using straight-line depreciation, one should use the following formula:

(Cost Basis)/Depreciable Life

An entrepreneur is offered a service contract that will cost him $600,000 initially. The contract has a 5 years of life and will generate a cash inflow of $160,000 per year. The cost of capital of this project is 12%. What's the NPV of the project? Should the entrepreneur accept the contract?

-$23,236; reject

Consider a bond with a Par Value of $1,000 it pays a coupon of 7% and the coupon is paid monthly. It matures in 2 years. Calculate the NPV if the yield on the bond is 5% and the price of the bond is $1100

-$62.01

Consider a bond with a par value of $1,000. it pays a coupon of 7% and the coupon is paid monthly. It matures in 2 years. Calculate the npv if the yield on the bond is 5%and the price on the bond is $1,100

-$62.01

Suppose and investment costs $10,000 with expected cash flows of $3,000 for 5 years. The discount rate is 15.2382%. The NPV is____ and the IRR is ______ for the project

0; 15.2383%

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $250,000 -the loan will be fully amortized in 3 years at 14% -marginal tax rate is 15% 1, What is the principal payment in the 1st year? 2. What is the principal payment in the 2nd year?

1 out of 2 1. $72,682.87 2. $65,910.60

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $4,000 Marginal tax rate= 15% Required rate of return= 10% real terminal value= $20,000 Investment life= 8 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 10 years and the inflation rate is 4% 1. What is the nominal terminal value? 2. What is the annual depreciation expense? 3. What is the nominal after-tax terminal value?

1. $0 2. $2,000 3. $2,000

A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating by $8,000 Suppose that the inflation rate is 4% and he marginal tax rate is 20% 1. What is the nominal net return at the end of year 2 2. Calculate the nominal after-tax net return at the end of year 2

1. $12,972 2. $14,400

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% 1. What is the nominal net return at the end of year 2? 2. Calculate the nominal after-tax net return at the end of year 2.

1. $12,972 2. $17,280

Suppose that Jim plans to borrow money for an education at TAMU. Jim will need to borrow $25,000 at the end of each year for the next five years= $125,000. Age bank can lend hime money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. At the end of the fifth year he agrees to pay off the loan by borrowing from Longhorn Bank at an annual interest rate of 6% and agrees to pay back that loan with 20 annual uniform payments. 1. Calculate how much money jim has to borrow at the end of the 5 years to pay off the Aggie Bank loan. 2. Calculate the annual payment Jim must pay to the Longhorn if the first payment is due at the end of the sixth year. (one year after borrowing the money from Longhorn.) 3. Calculate the total interest Jim must pay because of borrowing money to attend TAMU.

1. $127,525 2. $11,118 3. $97,360

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $8,000 Marginal tax rate= 10% Required rate of return= 10% real terminal value= $0 Investment life= 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 15 years and the inflation rate is 4% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $2,000 2. $200

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% 1. What is the total interest payment for this loan? 2. What is the total amount of tax savings from interest on this loan?

1. $21,916.13 2. $4,383.23

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% 1. What is the nominal net return at the end of year 3? 2. Calculate the nominal after-tax net return at the end of year 4.

1. $27,783 2. $27,360

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $4,000 Marginal tax rate= 15% Required rate of return= 10% real terminal value= $20,000 Investment life= 8 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 10 years and the inflation rate is 4% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $3,450 2. $450

The capital budgeting process involves

all of the above

Simple Rate-of-Return (SRR) is the rate-of-return expresses the ________ profits generated each year by an investment as a percent of either the original or the average investment over the investment's expected life.

average

A/an _________ is generally a security that promises a fixed periodic payment.

bond

a/an _________ is (generally) a security that promises a fixed periodic payment

bond

A farmer has been given to be a part owner is local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $5,000 each year from the firms profits. In additions, the farmer will receive a discount on fertilizer and he believes the discount will reduce his fert. costs by $2,000 per year. Plans to retire in 20 years and thinks he can sell equity for $60,000. 1. calculate the market value of this investment if the market rate of return on comparable invest. is 15% 2. Net present value if the price of this investment is $30,000 and the farmer's required a rate of return is 15% and state if investment is acceptable. 3. Yield on this investment if the price of this investment is $30,000 and the state if this investment is acceptable if the required rate of return is 15% 4. After the farmer has purchased part of the fert. he discovered that the decrease in fert. costs per year was on $1,000 and he only sold the business for $10,000. Given that the paid $30,000 for the business. what was the true yield?

1. $47,481 2.$17,481 ; Acceptable 3. 23.7% ; Acceptable 4. 19.21%X

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% 1. What is the interest payment in the 2nd year? 2. What is the principal payment in the 2d year? 3. What is the loan balance at the end of the 2nd year? 4. What is the tax saving in the 2nd year?

1. $5,944.44 2. $23,796.47 3. $32,713.13 4. $1,486.11

Given the following information: Nom initial cost= $90,500 Nom Before-tax Net Ret= $7,000 Marginal tax rate= 20% Required rate of return= 11% real terminal value= $110,500 Investment life= 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years and the inflation rate is 5% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $7,452 2. $1,400

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $52,000 -the loan will be fully amortized in 3 years at 10% -marginal tax rate is 15% 1. What is the tax saving in the 1st year? 2. What is the tax saving in the 2nd year? 3. What is the total interest payment for this loan?

1. $780.00 2. $544.35 3. $10,729.91

Suppose you invest $100 today, your return for the year is $10, and your tax rate is 20% 1. What is your before tax rate of return? 2. How much money did you earn after taxes? 3. What is your after-tax rate of return? 4. If your before tax rate of return was 10% and your marginal tax rate was 20%, calculate the after-tax rate of return?

1. 10% 2. $8 3. 8% 4. 8%

Given the following information: Nom initial cost= $80,000 Nom Before-tax Net Ret= $14,000 Marginal tax rate= 20% Required rate of return= 13% real terminal value= $60,000 Investment life= 3 years Inflation rate= 4% Risk premium= 4% Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years. 1. What is the after-tax, risk adjusted discount rate? 2. What is the nominal after-tax net return at the end of year 2? 3. What is the annual tax savings? 4. What is the nominal after-tax terminal value? 5. What is the present value of the nominal after-tax terminal value? 6. What is the NPV of this investment?

1. 13.2% 2. $12,113.92 3. $1,000 4. $65,193.47 5. $51,831.62 6. -$2,863

Sensitivity analysis is conducted by:

changing the value of a single variable and computing the resulting change in the current value of a project

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over 5 years. Calculate the monthly interest rates (yield) if the monthly payments are $700.00

1.94%

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculated the monthly interest rates (yield) if the monthly payments are $700,000

1.94%

Given the following information: Required rate of return= 11% Risk premium= 2.5% Marginal tax rate= 15% r=[r^bt= PREM](1-m) What is the after-tax adjusted discount rate?

11.48%

Typically how long is the normal course of business for current assets?

12 months

Typically, how long is the normal course of business for current assets?

12 months

Calculate the after-tax discount rate if the before tax discount rate is 20% and the marginal tax rate is 30%

14%

What is the rate of return on an investment that costs $100 and promises to return $115 in one year?

15%

Given the following information: Required rate of return= 15% Risk premium= 4% Marginal tax rate= 18% r=[r^bt= PREM](1-m) What is the after-tax adjusted discount rate?

15.58%

What is the rate of return on an investment that costs $150 and promise to return $175 in one year?

16.67%

What is the rate of return on an investment that costs $150 and promises to return $175 in one year.

16.67%

What is the rate of return on an investment that costs $150 and promises to return $175 in one year?

16.67%

Eddard and Robert borrow and pay principal based on the cash available at the end of each month. interest rate on the operating line of credit was 8% over the entire time period. estimate the 12/31/95 accrued interest balance on the operating line of credit?

2,700X

The internal rate of return (IRR)

2. is the rate generated solely by the cash flows of an investment. 3. is the rate that causes the net present value of a project to exactly equal zero.

The yield on a bond is 6% and inflation is expected to be 3% Calculate the real interest rate in the bond

2.91%

What is the rate of return on an investment that costs $225 and promises to return $275 in one year?

22.22%

Given that the total farm assets is 278.48 and the total farm debt is 48.8, what is the value of the equity capital?

229.68

Given the total farm assets is 278.48 and the total farm debt is 48.8, what is the value of the equity capital?

229.68

Suppose a particular investment project will requires an initial cash outlay of $1,000,000 and will generate a cash inflow of $200,000 in each of the next five years. What is the project's IRR? Suppose a company's hurdle rate is 15%, should it accept the project?

23%; accept the project

Eddard and Robert annual payment to iron bank. principle loan balance is $22500 interest is 8% estimated accrued interest of the loan on 12/31/95

250X

The yield on a bond is 8% and inflation is expected to be 4% calculate the real interest rate on the bond.

3.85%

What is the yield on an investment that costs $115 and promises $200 in two years?

31.9%

What is the yield on an investment that costs $115, and promises to pay $200 in two years?

31.9%

A farmer is thinking about investing in a center pivot irrigation system to irrigate 100 acres of land in fresno. -$175 -$300 -$10,200 -$42,000 -100 acres -5 year period of time -$20,000 -20% -15 years -$20,000 -11% capital return 1. calculate the initial cost 2. calculate the after-tax net returns 3. calculate the tax savings from depreciation 4. calculate the after-tax terminal value 5. Which discount rate should be used for calculating the NPV of the investment?

4 out of 10 1. $52,200 2. $14,000 3. $382 4. $30,744 5. 11.6%

A farmer is thinking about investing in a center pivot irrigation system to irrigate 80 acres of land in fresno. -$75 -$150/acre -$31,000 -5 year period of time -$31,000 -15% -straight-line over 15 years -$31,000 -10% return on capital 1. Calculate the initial cost 2. Calculate the after-tax net returns 3. Calculate the tax savings from depreciation 4. Calculate the after-tax terminal value 5. Suppose that the discount rate is 8.5% Using information from your answers above, what is the NPV for the investment?

4 out of 5 1. $39,200 2. $5,100 3. $2.613 4. $30,270 5. $4,104.83

The yield on bond is 8% and the inflation is expected to be 3% What's the real interest rate on the bond?

4.85%

An owner of a large ranch is considering the purchase of tractor with a front-end loader to clean his land instead of hiring workers. -$35,000 -$12,500 $1,500 -5 years -$23,500 in 5 years -depreciate the trailer over 10 years using straight-line -requires at least 20% pretax rate of return 1.What is the annual aftertax net return? 2.What is the tax savings from depreciation? 3. 4. 5. 6.

5 out of 10 1. $8,400 2. $1,143 3. b 4.a 5. $11,673.42 6.$4037

At the beginning of the year, Joseph Farmer purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment is $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. Depreciation expense to be reported for the second year using the double-declinging balance method is closest to:

5,250X

Consider a bond with a Pr Value of $1,000. it pays a coupon of 8% ad the coupon is paid annually. it matures in 8 Years. Calculate the yield on the bond if the price of the bond is $1,091.33

6.5%

Consider a bond with a par value of $1,000. it pays a coupon of 8% and the coupon is paid annually. it matures in 8 years. calculate the yield of the bond if the prices of the bond is $1,091.33

6.5%

Consider a bond with a par value of $1,000. It pays a coupon of 12% and the coupon is paid annually. It matures in 8 years. What is the yield on the bond if the price of the bond is $1091.33

8.5%

Suppose you can put your money in a savings account that pays 7%, compounded annually. How much money would you have in your savings account in 27 years if you invested $1350 today?

8389

Consider a bond with a Par Value of $1000. It pays a coupon of 12% and the coupon is paid semiannually. It matures in 20 years calculate the annual yield on the bond if the price of the bond is $723.98

9%

consider a bond with a par value of $1,000. it pays a coupon of 6% and the coupon is paid semiannually. it matures in 20 years. calculate the annual yield on the bond if the price of the bond is $723.98

9%

The yield (interest rate) on a bond is 12.5% and the inflation is expected to be 2.5%. What's the real interest rate on the bond?

9.76%

Which is not considered as depreciable assets?

crops

__________ measures and matches the income earned and expenses incurred within an accounting period.

Accrual-Basis accounting

________ measures and matches the income earned and expenses incurred within an accounting period

Accural-basis accounting

The investment decisions process includes

All of the above

A firm with a production function characterized by diminishing marginal productivity and operating in perfectly competitive markets will achieve ________ organizations of inputs and enterprises by producing so that marginal value products are equal in all enterprises.

equalX

The sum of probabilities of all possible events of an outcome is_______

exactly equal to one

The sum of the probabilities of all possible events of an outcome is_______

exactly equal to one

Deflation is the increase in the general price level

false

The coefficient variation is calculated by dividing the expected value by the standard deviation. it is used to compare investments with different expected values and levels of dispersion

false

The nominal interest rate doe not account for the loss of value due to inflation

false

The present value will be greater if the number of payments is a uniform annuity is shorter, holding everything else constant.

false

The pro forma income statement projects profitability, and also indicates liquidity or loan repayability

false

When the NPV of an investment is positive, then the IRR will be:

greater than the opportunity cost of a capital

The ________ is a systematic listing of all that the business owns (assets) and all that it owes (liabilities) at a specific point in time

Balance Sheet

________ is a systematic listing of all that the business owns (assets) and all that it owes (liabilities) at a specific point in time.

Balance Sheet

Sensitivity analysis provides information on

Both a and b

Which of the following are significant tools of financial management?

Cash Flows/ Information Flows/ Strategic Management/ Capital Budgeting

_______ is a summary of the cash flows and outflows over a specified period of time

Cash flow statement

________ is a summary of the cash inflows and outflows over a specified period of time.

Cash flow statement

The NPV method focuses on

Cash flows

_________ is the period of the time that principal accrues interest is aded to principal

Conversion period

_________ are represented cash and near-cash items whose values will likely be realized in cash or used during the normal course of business.

Current Assets

What are the two broad classes of assets that are commonly used to express the degree of liquidity?

Current and future assetsX

Which of the following has nothing to do with inflation

Decrease in the general price level

Which of the following has nothing to do with inflation?

Decrease in the general price level

Which item is included in a mission statement?

Definition of the business

The process of finding present values from future payments is often referred to as _________. it is the opposite of the ________ processes used to determine future values.

Discounting, compounding

The process of finding present values from future payments is often referred to as_______. It is the opposite of the __________ process used to determine future value.

Discounting/ Compounding

________ represents the claims of owners of the assets.

EquititesX

What statement is not one of the four commonly used financial statements for assessing and monitoring the financial position and progress of any business including farms?

Executive Summary

What statement is not one of the four commonly used financial statements for assessing and monitoring the financial position and progress of any business including farms?

Executive summary

A pro-forma income statement complies the net effect of revenue, expenses, confirm adjustments, and taxes

False

A pro-forma income statement complies the net effect of revenue, expenses, confirm adjustments, and taxes.

False

A risk-efficient set is constructed by selecting investments or combinations of investments that provide maximum risk for alternative levels of expected profits?

False

A risk-efficient set it constructed by selecting investments or combinations of investments that provide maximum risk for alternative levels of expected profits

False

An Increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital assets values and gross revenues increasing at a faster rate than debt and cost of debt

False

An increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital asset values and gross revenues increasing at a faster rate than debt and cost of debt.

False

An increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital asset values and gross revenues increasing at a later rate than debt and cost of debt.

False

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows

False

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows.

False

Annual Depreciation (D) is multiplied by (1- marginal tax rate) to get the tax savings from depreciation.

False

Assets with lower liquidity often have lower profitability?

False

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12,000 in 55 years from today

False

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12000 in 55 years from today

False

Both interest and principal amounts can be deducted from taxable income

False

Both interest and principal amounts can be deducted from taxable income.

False

Cash flows stated in nominal dollars over time cannot be converted to real dollars

False

Cash flows stated in real dollars over time cannot be converted to nominal dollars

False

Compound interest means each time interest is paid, it is added to or compounded into the principal but does not earn interest.

False

Compounding interest means each time interest is paid. It is added to or compounded into the principal but does not earn interest.

False

Depreciation changes reflect the funds that need to be set aside and accumulated from cross revenue in order to replace the depreciation asset. it is considered as a cash transaction.

False

Depreciation charges reflect the funds that need to be set aside and accumulated from gross revenue in order to replace the depreciation assets. It is considered as a cash transaction.

False

Fundamental analysis is a security analysis methodology for forecasting the pattern of prices by using the study of past market data

False

Fundamental analysis is a security analysis methodology for forecasting the pattern of prices by using the study of past market data.

False

If the net present value is negative then you have made an acceptable investment.

False

If the net present value to positive then you have made an unacceptable investment.

False

In terms of profitability, the sensitivity of an investment to any variable can be tested by setting the specified variable equal to zero and solving for the net present value.

False

Inflation is the decrease in the general price level

False

Interest on a business loan is not tax deductible

False

Long-term planning horizons, lengthy payoff periods, seasonality, and uncertainties about future events and decision outcomes make the life- cycle effects very important in financial management.

False

Long-term planning horizons, lengthy payoff periods, seasonally, and uncertainties about future events and decision outcomes make the life-cycle effects very important in financial management.

False

Net Cash flows is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate. However, real cash flows must be discounted by a real discount rate only

False

Nominal cash flows can be discounted bySu either a nominal discount rate or a real discount rate. However real cash flows can be discounted by a real discount rate only.

False

One of the capital budgeting methods is the component method. in this method we calculate net cash flow for each period and then calculate the NPV for the investment.

False

Payback period is the time span needed to make an appropriate decision for the first period (the amount of time an organization will look into the future when preparing a strategic plan.)

False

Planning Horizon is the length of the time required for an investment to pay itself out or to recover the initial outlay of funds.

False

Principal payments on a fully amortized loan decreases over the life of the loan.

False

Real cash flows can be discounted by either a nominal discount rate or a real discount rate. However, nominal cash flows must be discounted by a nominal discount rate only

False

Real prices are the prices that do not reflect today's purchasing power

False

Real prices are the prices that reflect today's purchasing power.

False

Risk Premium only depends on an individuals risk/return preference

False

Sole- proprietor family-oriented farms are still common in the agricultural sector. Many of these operations separate business-related assets and liabilities from personal accounts

False

Sole-proprietor family-oriented farms are still common in the agriculture sector. Many of these operations separate business-related assets and liabilities from personal accounts

False

Suppose a investment has a life of 5 years, an after-tax discount rate of 12% and tax savings from depreciation of $1,500 per year. The present value of tax savings from depreciation is $8,400

False

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 returns is $38,400

False

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

False

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 values $60,800

False

Suppose an investment of 3 years an after- tax discount rate of 10% and and after tax terminal value of $60.800. The present value of the after tax terminal value is $60,800

False

Technical analysis is a security analysis methodology aiming to determine a security's value by focusing on underlying factors that affect a company's actual business

False

Technical analysis is a security analysis methodology aiming to determine a security's value by focusing on underlying factors that affect a company's actual business.

False

The after-tax discount rate is the before tax discount rate multiplied by the marginal tax rate.

False

The book value of a contract is the present value of future payments of any contract at the market rate

False

The book value of a contract is the present value of future payments of any contract at the market rate,

False

The book value of a contract is the present value of future payments of any contract discounted at the market rate.

False

The cash flow budget must not be formulated on a historical basis to provide an accounting check.

False

The coefficient of variation is calculated by dividing the expected value by the standard deviation. It is used to compare investments with different expected values and levels of dispersion

False

The correct internal Rate of Return is found when the Net Present Value is equal to 1

False

The expected value is found by summing the value of all events

False

The expected value is found by summing the values of all events

False

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant

False

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant.

False

The future value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant

False

The future value will be similar if the interest rate in a uniform annuity is greater, holding everything else constant.

False

The future value will be smaller if the interest rate in a uniform annuity is greater, holding everything else constant

False

The interest rate accounts for the loss of value due to inflation

False

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

False

The managerial accounting reports are internally based records that often are tailored to the characteristics of general farm businesses.

False

The managerial accounting reports are internally based records that often are tailored to the characteristics of general farm businesses?

False

The market value of a contact is the future value of the remaining payments of a contract compounded at the market rate

False

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate

False

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate.

False

The market value of a contract value of the remaining payments of a contract compounded at the market rate.

False

The only way to measure inflation is by the Consumer Price Index

False

The only way to measure inflation is by the consumer price index

False

The present value of a single sum can be found with V(n)= V(o) (1+r)^N. V(o) is the present value V(n) is the future value in the N periods. r is the rate, and N is the number of periods

False

The present value of a single sum can be found with Vn=Vo(1+r)^N. Vo is the present value, Vn is the future value in N periods, r is the rate, and N is the number of periods.

False

The present value of after-tax saving from depreciation is obtained by discounting the annual tax savings from depreciation using the marginal tax rate as the discount rate.

False

The present value of the after-tax savings from depreciation is obtained by discounting the annual tax savings from depreciation using the marginal tax rate as the discount rate.

False

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant

False

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.

False

The present value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.

False

The price of a bond goes down as interest rates go down.

False

The price of bond and the interest rate are positively correlated

False

The price of bond and the interest rate are positively correlated.

False

The price of the bond goes down as the interest rates go down?

False

The program income statement projects profitability, and also indicates liquidity or loan reparability?

False

The tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method

False

The tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method.

False

The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment

False

The theory of accounting is the concern with how individuals and firms allocate resources through time

False

The theory of accounting is the concern with how individuals and firms allocate resources through time.

False

The total claims of creditors and owners can exceed the total value of assets

False

The total claims of creditors and owners can exceed the total value of assets?

False

When using straight-line depreciation to calculate depreciation for tax purposes, you should divide the cost basis by the planned life of the investment.

False

With compounded interest only the original principal, or amount of money borrowed, earns interest over the life of the transaction

False

With simple interest each time interest is paid, it is added to or compounded into the principle but does not earn interest.

False

With simple interest each time time interest is paid, it is added to or compounded onto the principal but does not earn interest.

False

machinery sales, cost reduction, and income generating, are categories of alternative investments

False

the tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method.

False

In 1994, the corporate name FFSTF was changed to the_____ to reflect the performance of the organization.

Farm Financial Standards Council

In 1994, the corporate name of FFSTF was changed to be the _________ to reflect the permanence of the organization.

Farm Financial Standards Council

FFSTF

Farm Financial Standards Task Force

Financial ______ is the ability of an investment to satisfy the financing forms and performance criteria agreed upon by the borrower and the lender

Feasibility

Financial _______ is the ability of an investment to satisfy the financial terms and performance criteria agreed upon by the borrower and the lender.

Feasibility

What does GAAP stand for?

Generally Accepted Accounting Principles

What does GAAP stand for?

Generally Accepted Accounting Principles.

.20 .15 .18 .30 .10 .50 .07 .08 .15 .05 .30 -.05 -.08 -.20 -.01

H: 1.442 BC: 1.814 S: 2.517 MF: .927

Suppose an investor is considering four investments, and has made forecasts of returns and probabilities for each investment. The discrete probability distributions of the profit rates are represented in the following table.

Hogs: 1.442 Beef Cattle: 1.814 Stocks: 2.517 Mutual Funds: 0.927

The ______ is a summary of the revenue and expenditures of the business over a specified period of time. It is also known as the ________.

Income statement/ profit and loss statement

the ________ is a summary of the revenue and expenditures of the business over a specified period of time. it is also known as the _______.

Income statement/ profit and loss statement

________ is the period of time that principal accrues interest before interest is added to principal.

Interest periodX

_______ are claims on the firms assets by lenders and other creditors.

Liabilities

_______ refers to the fir,s capacity to generate cash quickly and efficiently to meet its financial commitments as they fall due

Liquidity

_______ refers to the firm's capacity to generate cash quickly and efficiently to meet its financial commitments as they fall due.

Liquidity

_________ facilitates tax management by allowing farmers to shift sales and expenditures from one year to another in response to swings in farm income and to defer tax obligations to later years

Liquidity-basis accountingX

What does MARCS stand for?

Modified Accelerated Cost Recovery System

Which of the following does not characterize NPV?

NPV does not explicitly incorporate risk into the analysis

Which of the following does not characterize NPV?

NPV does not explicitly incorporated risk into the analysis

The preferred technique for evaluating most capital investments is

Net Present Value

A company accrued wages of $2,000 and collected accounts receivable of $10,000. Which of the following best describes the effect of these two transactions on the company?

Net income will increaseX

_______ reflects the level of preferences attached to a good or service.

PriceX

Goals are expressed as a goal or utility function containing three elements which are?

Profitability Liquidity Risk

Project X and Project Y are two mutually exclusive projects. X requires initial outlay of $37,990 and generates a net cash flow of $14,050 per year for six years. Y requires initial outlay of $51,950 and will generate cash flows of $15,450 per year for 8 years. Which should be chosen assuming a discount rate of 10% for each.

Project X

Given all the choices below, which is not a primary source of business risk of agricultural firms?

Real estate price fluctuation

Jon and Robb 25% 55% 20%

Remodel E: 4700 SD: 27767 CV: 1693 Build E.: 47000 SD: 80722 CV: .582X

Investment Analysis is a producer for evaluating the effects of investment choices on business's profitability, _______, and liquidity.

Risk

______ investors must be compensated for taking risks.

Risk-lovingX

Which of the following is a source of risk that can be categorized in financial risks rather than business risks

Risks attributed to borrowing and leasing

Which of the following is a source of risk that can be categorized in financial risks rather than business risks?

Risks attributed to borrowing and leasing

An analysis of what happens to the estimate of the net present value when you examine a number of different likely situations is called ______ analysis.

Senario

What are the two broad classes of assets that are commonly used to express the degree of liquidity

Tangible and intangible assetsX

"Pro forma" refers to setting up accounting information in advance

True

"Pro forma" refers to setting up accounting information in advance.

True

A future contract for the sale of a god at some point in the future at a special price.

True

A future contract is a contract for the sale of a good at some point in the future at a specific price.

True

A projected cash flow statement can be used to determine if an investment is financially feasible

True

Tax basis is equal to:

initial cost basis- accumulated depreciation

Which way can be used to increase liquidity?

lengthening the maturity on long-term debtX

______ are the claims on the firm's assets by lenders and other creditors

liabilities

With _______, each asset is represented at the ______, while with ______, assets are valued at their______.

market valuation/ current fair market value/ cost-basis valuation/ original cost plus accumulated depreciationX cost-basis valuation/ current fair market value/ fair valuation/ original cost plus accumulated depreciationX

As the degree of sensitivity of a project to a single variable rises, the

more attention management should place on accurately forecasting the future value of that variable

Collecting relevant info. is important in capital budgeting. Which of the following is least important?

name of your bank if not an option then cash expenses

Which of the following is not a liability?

prepaid expenses

Discounting is the process of finding _____ values.

present

Discounting is the process of finding ______ values?

present

Discounting is the process of finding ________ values.

present

Discounting is the process of finding_____ values

present

Goals are expressed as a goal or utility function containing three elements. What are the three elements?

profitability liquidity risk

Given all the choices below, which is not a primary source of business risk of agriculture firms?

real estate price fluctuatuion

Which is not considered as depreciable assets?

real estateX

Jon and Robb have determined the existing storage facilities are too small and need to be expanded. They predict the probabilities of pessimistic, most likely, and optomistic states of the economy are 25%, 55%, and 20%. Using the coefficient of variation, determines the more preferable alternative: pessimistic .25; 20,000; -20,000 most likely .55; 40,000; 20,000 optamistic .20; 100,000; 205,000

remodel

Investment Analysis is a producer for evaluating the effects of investment choices on a business's profitability, ______, and liquidity.

risk

_________ investors have a high propensity to engage in risky investments.

risk-loving

___________ investors care only about their expected gains or losses

risk-neutral

The linkage between ______ and ______ is based on uncertainties about future events and decision outcomes.

risk/time

The linkage between _______ and ________ is based on uncertainties about future events and decrease outcomes

risk/time

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.

sensitivity

Which of the following is not a common method of depression used in accounting?

straight-lineX

Accumulated depreciation is

sume of depreciation claimed on tax returns

The tax on capital gains of loss on an investment is

terminal gain or loss on an investment times the marginal tax rate

The internal rate of return for a project will increase if

the initial cost of the project can be reduced

The internal rate of return for a project will increase if:

the initial cost of the project can be reduced

Compounding converts a present amount into a equivalent future amount.

true

Deflation is the decrease in the general price level

true

Highly non liquid assets cannot be readily converted to cash without a substantial lose in value to the firm

true

Income taxes due on the closing balance sheet should come directly from that year's income statement

true

Land is an asset that does not depreciate.

true

Nominal prices are the prices as you observe them

true

Rate of inflation is the percentage rate of increase in inflation

true

Real cash flows should be discounted by a real discount rate only.

true

Risk is often measured as the standard deviation of the returns while profits are measured as the expected values of returns

true

Simple interest mean only the original principal, or amount of money borrowed, earns interest over the life of the transaction

true

The conversion period is the time that principal accrues interest is added to principal.

true

The nominal interest rate accounts for the time value of money and the loss of value due to inflation

true

The price of the bond and the interest rate are inversely related

true

The standard deviation is the amount of dispersion or variation about the expected value

true

Internal rate-of-return is the yield of an investment, i.e, the rate of interest that equates the net present value of the projected series of cash flow payments to_______

zero

Internal rate-of-return is the yield of an investment, i.e., the rate of interest that equates the net present value of the projected series of cash flow payments to ________.

zero

Internal Rate-of-return (IRR) is the yield of an investment, i.e., the rate of interest that equates the net present value of the projected series of cash flow payments to ____.

zero.