agec 330 final combo
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%. What is the value of loan payment per period?
$17,773.47
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
Given the following loan information: Annual loan payment = $47,100 Number of remaining periods = 6 Interest rate = 12% What is the book value of the loan?
$193,647.28
If you borrow $8,000 and pay it back in 9 equal annual payments (principal and interest) at 7% interest. What are the annual payments?
$1,228
A decrease in leverage will increase business risk.
False
Assets with lower liquidity often have lower profitability?
False
Net Revenue is equal to operating revenue plus operating expense.
False
Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate.
False
Budgeting Methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ______ budgets, and capital budgets.
Cash Flow
_________ is the period of the time that principal accrues interest is aded to principal
Conversion period
________ is the cost of using the funds of creditors and owners.
Cost of capital
A discount rate must account for the followings:
Cost of capital, Return on alternative investments, Risk, and Taxes
Which of the followings is not included in closing costs? Origination fees Inspection fees Appraisals Correct Coupon payments Attorney's fees All are included in closing costs
Coupon payments
Which of the following does not increase a firm's average after-tax profitability?
Crop Insurance
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
Suppose an investment has a life of 5 years, an after-tax discount rate of 12%, and an after-tax terminal value of $75,000. The present value of the after-tax terminal value is $132,176.
False
Internal capital rationing means that there is a limit to how much capital a farmer can obtain from external sources to invest in his business.
F
Investment is the addition of non-durable assets to a business.
F
Land is a durable, mobile resource.
F
Net returns to land have an inflation premium and are expected to increase at the rate of inflation.
F
The after-tax discount rate is the before tax discount rate multiplied by one plus the marginal tax rate.
F
The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment.
F
The participants in financial markets include
All of the above (institutional investors, government, individuals)
As long as an investment is profitable we should always accept it.
F
The uniform series future value factor [USFV(r,N)] is based on beginning of period cash flows. With r being the rate and N being the number of periods.
F
Capital Budgeting is the process of planning asset expenditures whose returns are expected to extend within one year.
False
Capital budgeting is a chronological overview of expected cash income and expenses over a given period of time
False
Cash flows stated in nominal dollars over time cannot be converted to real dollars
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
Inflation is an increase in the general level of prices and quantities for all goods and services in an economy.
False
Inflation is the decrease in general price level.
False
Inflation is the decrease in the general price level
False
Inflation will affect the annual depreciation a farmer can claim as a tax deduction after a tractor is purchased.
False
Interest on a business loan is not tax deductible
False
Interest on a business loan is not tax deductible.
False
Interest payments on a fully amortized loan decline over the life of the loan.
False
Interest payments on a fully amortized loan increase over the life of the loan.
False
Interest payments on a fully amortized loan stay constant over the life of the loan.
False
It is important to remember in a lease the buyer will take the ownership of the asset and the seller will lose ownership completely
False
Leverage that is between .33 and 1 is considered unfavorable.
False
Businesses are net Demanders of securities.
F
The IRR is the rate of return on the cash flows of the investment, also known as the opportunity cost of capital.
F
The Net Cash Flow is calculated as Cash Revenues minus Cash Expenses plus the marginal tax rate times the taxable income.
F
The Net Cash Flow is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.
F
The future value of a single sum can be found with V0=VN(1+r)-N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.
F
The impacts of time and risk are not important in financial management.
F
The only way to measure inflation is with the Gross Domestic Product (GDP) Deflator.
F
Identification of investment alternatives is a responsibility that generally falls to the ___________ of the firm?
Manager
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 annual yield on the bond if the price of the bond is $892.66.
NOT 8%
Financial management involves the acquisition and use of financial resources.
T
Interest is compensation for foregone investments or consumption.
T
Investment is the addition of durable assets to a business.
T
It is best to layout cash flows using a time line
T
It is important to include non-interest costs when calculating the decision criteria to compare loans.
T
Land has specified legal description, with ownership recorded by local governments for taxation and other controls.
T
Land is a durable, immobile resource.
T
Life Insurance Companies make loans to farmers.
T
Loan Payment includes a real return and an inflation premium.
T
Low asset liquidity is one the of the structural characteristics of the agricultural production sector.
T
Mutual funds are a pool of funds from investors. These funds are invested in a portfolio of securities.
T
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 $2,653.
T
The USPV factor assumes a finite number of periods.
T
The actuarial rate can be the same as the APR.
T
Utilizing a wait-and-see strategy may be particularly effective if the investment is both irreversible and postponable.
T
An enterprise budget is a financial management tool used to project costs and returns for an activity- such as livestock, grain or vegetable production.
True
Fully Amortized loan implies an equal periodic payment including principal and interest.
True
Fully Amortized loan implies and equal periodic payment including principal and interest.
True
Fully amortized loan implies an equal periodic payment including principal and interest.
True
Greater leverage will lead to greater risk.
True
Highly non liquid assets cannot be readily converted to cash without a substantial loss in value to the firm?
True
Identification of investment opportunities is a crucial function of management.
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 principal and interest.
True
Sensitivity of the investment to a variable can be measured by the steepness of the slope
True
The future value is higher if one dollar today is compounded monthly rather than annually, holding everything else constant
True
The inherent characteristics of agricultural enterprises cause different timings of return
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 nominal interest rate accounts for the time value of money and the loss of value due to inflation.
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 impacts of time and risk are not important in financial management
False
The nominal interest rate does not account for the loss of value due to inflation.
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.
F
When we calculate the annuity equivalent, it is best to use nominal discount rate.
F
When you have internal and external capital rationing, it is likely that you will accept the investment that returns the cost of capital.
F
With compounded interest only the original principal, or amount of money borrowed, earns interest over the life of the transaction.
F
"Machinery Sales," "Cost Reduction," and "Income Generating" are categories of alternative investments.
False
A futures contract is a contingent claim. It gives holders the right to buy or sell something at a specific period during a period of time
False
A partial budget is a financial management tool used to project all costs and returns for an activity- such as livestock, grain or vegetable production
False
A primary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.
False
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
A simple method to account for risk in capital budgeting is to add a risk premium to the inflation rate.
False
Accounting Methods are used to evaluate the future directions of a firm
False
Accounting procedures for capital leases are less complicated than for operating leases.
False
Adding the risk premium increases the discount rate thus increasing an investment's present value holding everything else constant.
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 options contract is a contract for the sale of a good at some point in the future at a specified price.
False
Annual Depreciation (D) is multiplied by (1- marginal tax rate) to get the tax savings from depreciation.
False
As government programs are put in place to reduce business risk optimal leverage will decrease; which will allow farms to borrow more money.
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
Bonds promise an uncertain payment per period and returns principal at maturity.
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
Business risk is equal to the total farm risk plus financial risk.
False
Businesses are net Demanders of securities.
False
Cash flows stated in real dollars over time cannot be converted to nominal dollars.
False
Choice of discount rate is controlled by the financial market.
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
Costs of equity are the costs a firm incurs for its financial capital. Cost of equity, in turn, refers to the debt and equity claims making up the liabilities side of the firm's balance sheet.
False
Decreasing the rate of return on assets can increase profitability.
False
Deflation is the increase in the general price level
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
Financial management has only a micro-economic activity focus.
False
Financial risk is equal to the total farm risk times the business risk.
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 before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 15.36%.
False
If the before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 3.36%.
False
If the net present value is less than zero, be indifferent.
False
If the net present value is negative then you have made an acceptable investment.
False
If the net present value is positive then you have made an unacceptable investment.
False
If the net present value to positive then you have made an unacceptable investment.
False
If there are restraints on equity capital but no restraints on debt capital, we could finance with debt as long as returns were lower than the cost of debt.
False
In general, greater expected profits require less risk when making financial decisions.
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
In the context of profitability, an investment is acceptable if the Net Present Value is zero or less.
False
Incremental cash flows are taxed at one's average tax rate.
False
Incremental cash flows are taxed at one's sales tax rate.
False
Land has specified legal description, with ownership recorded by local governments for taxation and other controls.
False
Leverage does not have an impact on returns and risk relative to the profit margin, business risk and taxes.
False
Leverage will increase profitability as long as rate of return on assets is less than the cost of debt.
False
Life Insurance Companies do not make loans to farmers
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 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 by either a nominal discount rate or real discount rate.
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 & then calculate the NPV for the investment.
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
People use money to invest in real goods and financial goods only.
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
Planning Horizon is the length of time required for an investment to pay itself out or to recover the initial outlay of funds.
False
Planning Horizon is the length of time required for an investment to recover the initial outlay of funds.
False
Principal payments on a fully amortized loan decrease over the life of the loan.
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 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
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 $60,800.
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 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 $38,400
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 net 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 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 $60,000.
False
Suppose an 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 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 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.
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 Net Cash Flow is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.
False
The USPV factor assumes infinity number of periods
False
The after-tax discount rate is the before tax discount rate multiplied by one plus the marginal tax rate.
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 an investment is the present value of the remaining payments discounted by 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 correct internal Rate of Return is found when the Net Present Value is equal to 1
False
The cost of an investment needs to be discounted.
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 greater the profit margin (the rate of return an assets - the cost of debt) of a firm decreasing leverage will increase profitability.
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 last step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement
False
The loan balance when an investment is terminated can be obtained by calculating the market value of the loan.
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 nominal interest rate does not account for the time value of money and the loss of value due to inflation.
False
The only commonly accepted method to account for risk in capital budgeting is to adjust the discount 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 only way to measure inflation is with the Gross Domestic Product (GDP) Deflator
False
The only way to measure inflation is with the Gross Domestic Product (GDP) Deflator.
False
The operating lease is usually a long- term rental arrangement in which the rental charge is calculated on a time basis.
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 program income statement projects profitability, and also indicates liquidity or loan reparability?
False
The rate of return on equity is equal to the income before interest and taxes divided by assets.
False
The real interest rate does not account for the time value of money.
False
The secondary market is the part of the capital market that deals with issuing of new securities.
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 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 timing and nature of the investment are important factors influencing financial feasibility.
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
Weighted cost of capital can be found with the formula ie(D/A)+ id(E/D). With ie being cost of equity capital, id being cost of debt capital, ia being cost of capital, D is debt, E is equity, and A is assets.
False
When finding the after-tax net return it is not important to discount with the after-tax discount rate.
False
When finding the present value of tax savings from depreciation it is important to use the before- tax discount rate.
False
When rate of return on assets is less than the cost of debt and leverage increases the profits increase as well.
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 principal but does not earn interest
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
Yield is calculated as the discount rate that makes the future value of cash inflows equal to the present value of cash outflows.
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
Financial _____ is the ability of an investment to satisfy the financing terms and performance criteria agreed upon by the borrower and the lender.
Feasibility
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
Financial _______ is the ability of an investment to satisfy the financing terms and performance criteria agreed upon by the borrower and the lender.
Feasibility
_______ 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
The payback period method may be most appropriate for firms with _____________.
Low liquidity
Which of the following is not a characteristic unique to agricultural finance?
Low technology usage
Assume you can buy a new car, currently selling for $32,000 by putting $2,000 down and making payments of $450 per month for 60 months. What is the annual rate of interest you would be paying?
NOT 1.379
A contract the gives the holder the right to buy or sell something at a particular price during a period in time is
Options contract
_______ reflects the level of preferences attached to a good or service.
PriceX
Finance function comprises
Procurement and efficient use of funds
Goals are expressed as a goal or utility function containing three elements which are?
Profitability Liquidity Risk
Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go down but eventually go up as leverage increases.
True
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 $2,653
True
Net returns to land do not have an inflation premium but are expected to increase at the rate of inflation.
T
Nominal cash flows should be discounted with the nominal discount rate.
T
Portfolio risk can be reduced with a mix of securities and by investing in stocks with different characteristics.
T
Principal payments on a fully amortized loan increase over the life of the loan.
T
Prior to evaluating any investment opportunity, data must be gathered to support the calculations.
T
Projected Cash Flow Statement can be used to determine if an investment is financially feasible.
T
Rate of Inflation is the percentage rate of increase in inflation.
T
Risk and return characteristics of an individual portfolio depend on the individual's risk/return preference.
T
Securities give you the title to common stock and treasure bonds.
T
Sensitivity of the investment to a variable can be measured by the steepness of the slope (negative or positive)
T
Simple Interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction.
T
Stock investors are in a residual position in regards to claims on income and assets.
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 5 years, an after-tax discount rate of 12%, and an after-tax terminal value of $75,000. The present value of the after-tax terminal value is $42,557.
T
Suppose an 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 $5,407.
T
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.
T
The APR is calculate after the actuarial rate
T
The APR is calculated after the actuarial rate.
T
The Market Value of any contract is the present value of the remaining payments discounted at the market rate.
T
The Net Cash Flow is calculated as Cash Revenues minus Cash Expenses minus the marginal tax rate times the taxable income.
T
The Net Cash Flow is calculated as the after-tax net returns plus the annual depreciation multiplied by the marginal tax rate.
T
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.
T
The Net Present Value is an investments profit over the required return to capital.
T
The Tax savings from Depreciation is added to the cash flows when calculating the NPV using the component method
T
The addition of durable assets to a business is known as investment.
T
The annuity equivalent is defined as the uniform annuity over the life of an investment that is equivalent to the investment's NPV.
T
The annuity equivalent method provides the annual annuity over the economic life of the investment that results in a present value equal to the present value of its projected cash flow stream of the investment.
T
The balance sheet can be used to measure the firm's financial position at a specific point in time.
T
The book value of an investment is the present value of the remaining payments discounted by the contract rate.
T
The conversion period is the period of time that the principal accrues interest before interest is added to principal
T
The conversion period is the time that principal accrues interest before interest is added to principal.
T
The cost of an investment does not need to be discounted.
T
The first step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement.
T
The future value of $100 deposited today for 10 years at 10% compounded annually is $259.37
T
The future value of a $100 ordinary annuity deposited for 10 years at 10% is $1,593.74.
T
The future value of a single sum can be found with VN=V0(1+r)N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.
T
The future value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.
T
The inherent characteristics of agricultural enterprises cause different timings of return.
T
The internal rate of return and marginal efficiency of capital are equivalent.
T
The maturity of debt securities traded in the money market is less than 1 year.
T
The maximum bid price of land can be found by setting the NPV equal to zero and solving for the initial cost of the land.
T
The maximum bid price of land is the most one can pay for an acre of land sand still be a profitable investment.
T
The maximum bid price would allow the investor to earn the rate-of-return stipulated by the discount rate, given data about all of the other factors.
T
The modified internal rate-of-return uses the cost of capital explicitly as the reinvestment rate for the project's cash flows.
T
The present value of a single sum can be found with V0=VN(1+r)-N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.
T
The present value of cost is equal to the initial cost.
T
The present value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.
T
The price of bond and the interest rate are inversely related.
T
The primary market is the part of the capital market that deals with issuing of new securities.
T
The real prices of commodities may decline over time due to more efficient production technology.
T
The real prices of commodities may decline over time due to the increase of imports from other countries.
T
The terminal value that should be used in calculating depreciation for capital budgeting is zero
T
The total loan payment is constant for fully amortized loans
T
The uniform series future value factor [USFV(r,N)] is based on end of period cash flows. With r being the rate and N being the number of periods.
T
To check financial feasibility, we only need to look at NCF (net cash flow before debt).
T
Use the real discount rate to appropriately account for inflation when calculating the annuity equivalent for an investment.
T
When calculating IRR with a trial and error process, discount rates should be raised when NPV is positive.
T
When comparing loans based on the least cost when the conversion periods are the same, one can compare the actuarial or annual percentage rate.
T
When finding an annuity equivalent of a capitam investment and inflation is assumed to be zero, we use the formula Ae= NPV/[USPVr%,N].
T
When finding the after-tax net return it is important to discount with the after-tax discount rate.
T
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.
T
With unrestricted access to equity and debt, firms should choose the leverage that gives the lowest cost of capital.
T
Yield is calculated as the discount rate that makes the present value of cash inflows equal to the present value of cash outflows.
T
What are the two broad classes of assets that are commonly used to express the degree of liquidity
Tangible and intangible assetsX
Which of the following is not a component of an NPV according to the Component Method?
Tax Savings from Financial Activities
Financial Management evaluates the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, cash flow budgets, and capital budgets
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 Planning is the process of determining a firm's financial needs or goals for the future and the means to achieve them.
True
Financial feasibility analysis is for single investments that uses present value methods to test the effects of variations in loan length, interest rate, loan size, and level of payment on the investment's ability to meet these financing terms.
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
Financial management involves the protection of equity capital from risk
True
Financial risk is equal to the total farm risk minus the business risk.
True
Finding optimal leverage is a choice that is specific to individuals.
True
Fully amortized loan implies an equal periodic payments 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
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
Risk-adjusted discount rate is the rate established by adding a risk premium to the risk-free rate when investments are known to be risky and the investor is risk averse.
True
Securities give you the title to common stock and treasure bonds.
True
Sensitivity is an analysis shows how an input variables in a capital budgeting decision affects investment profitability (net present value) while keeping other variables constant.
True
Sensitivity of the investment to a variable can be measured by the steepness of the slope (negative or positive)
True
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 $2,653.
True
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.
True
Suppose an investment has a life of 5 years, an after-tax discount rate of 12%, and an after tax terminal value of $75,000. The present value of the after-tax terminal value is $42,557.
True
Suppose an 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 $5,407.
True
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 $50,282.
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
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
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
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 Flow is calculated as the after-tax net returns plus the annual depreciation multiplied by the marginal tax rate.
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 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 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 Tax savings from Depreciation is added to the cash flows when calculating the NPV using the component method.
True
The Terminal Value can be considered the tax basis of an investment when it is sold.
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 book value of an investment is the present value of the remaining payments discounted by 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 cost of an investment does not need to be discounted.
True
The first step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement
True
The future value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.
True
The greater the profit margin (the rate of return on assets - the cost of debt) of a firm increasing leverage will increase profitability
True
The impacts of time and risk are important in financial management.
True
The inherent characteristics of agricultural enterprises cause different timings of return.
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 lessee's rental payments are a deductible expense for income tax purposes.
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 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 primary market is the part of the capital market that deals with issuing of new securities.
True
The rate of interest (or discount rate) that makes the net present value of the projected series of cash flow payments equal to zero is the internal rate of return.
True
The rate of return on equity is equal to the income after interest and taxes divided by equity.
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 sleep quotient states, "if you cannot rest easy with the current debt load, don't take on additional debt."
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
The theory of finance is the concern with how individuals and firms allocate resources through time
True
The two indices to measure inflation are the Consumer Price Index (CPI) and the Gross Domestic Product (GDP) Deflator.
True
The withdrawal of durable assets from the business is disinvestment.
True
To calculate the tax savings from interest multiply the interest paid by the marginal tax rate.
True
When finding the after-tax net return it is important to discount with the after-tax discount rate.
True
When finding the present value of tax savings from depreciation is it important to use the after- tax discount rate.
True
When finding the present value of tax savings from depreciation is it important to use the after-tax discount rate.
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
With unrestricted access to equity and debt, firms should choose the leverage that gives the lowest cost of capital.
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
the price of bond and the interest rate are inversely related.
True
Which of the following is not a common method of depression used in accounting?
straight-lineX
Accumulated Depreciation is
sum of depreciation claimed on tax returns
Accumulated depreciation is
sume of depreciation claimed on tax returns
The tax on capital gains or loss on an investment is
terminal gain or loss on an investment times the marginal tax rate
The tax on capital gains or loss on an investment is
terminal gain or loss on an investment times the marginal tax rate.
The IRR method assumes that the reinvestment rate of cash flows is
the IRR
The taxable gain or loss on the terminal value of an investment is
the terminal value of the investment minus the tax basis
One method that can be used to increase the NPV of a project is to decrease the:
time until receipt of cash inflows
One method that can be used to increase the NPV of a project is to decrease the:
time until receipt of cash inflows.
Compounding converts a present amount into a equivalent future amount.
true
The internal rate-of-return represents the interest rate necessary to make the net present value _______________.
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.
Nominal cash flows should be discounted with a real discount rate.
False
Once a strategic management process is determined it should not be altered
False
One of the capital budgeting methods is the Component Method. In this method, we calculate net cash flow for each period & then calculate the NPV for the investment.
False
Payback Period is the time span needed to make the Net Present Value greater than zero.
False
Principal payments on a fully amortized loan stay constant over the life of the loan.
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 Aversion means the subjective tendency of investors to seek out unnecessary risk.
False
Risk Premium only depends on an individuals risk/return preference
False
Risk and return characteristics of an individual portfolio does not depend on the individual's 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
Tax Savings from interest can be found by multiplying the before-tax risk free discount rate by the interest paid.
False
The book value of a contract is the present value of future payments of any contract discounted at the market rate.
False
The yield on an investment is always equal to the discount rate used to calculate the NPV
False
FFSTF
Farm Financial Standards Task Force
Which of the followings is a source of price information?
Farmers
An investment in fixed, highly specific, illiquid assets that cannot easily be liquidated or redeployed to other uses is considered _______________.
Irreversible
What is the yield on an investment that costs $125, and promises to pay $275 in three years?
NOT 15.32%, NOT 12.07
Suppose Mr. Agirich of Agirich Farms has made a good profit on his cotton this year and wants to put $10,000 in a savings account to pay for his son's education. The bank pays 4% compounded annually on money in savings accounts. How many years will it take for the money to triple if money is put in the savings account today (round off to the greatest year)?
NOT 18 years
What is the yield on an investment that costs $115, and promises to pay $200 in two years?
NOT 20.26%
One of the key components of financial investing is that there is no expected high return without bearing high risk.
T
Proforma Statements can be used to create a business plan.
T
The focal point of financial management in a corporate firm is
The creation of value for shareholders
The future value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.
T
Which of the followings is not a component of an NPV according to the Component Method?
Tax Savings from Financial Activities
Which of the following is true about the NPV and IRR techniques?
The NPV and IRR techniques explicitly consider the cost of capital and the time value of money.
Which of the following is an IRS guideline given to qualify a transaction as a lease for tax purposes?
The asset is not expected to be useable to the lessor except for the purposes of continued leases or transfer to the lessee.
One of the key components of financial investing is that there is no expected high return without bearing high risk.
True
Principal payments on a fully amortized loan increase over the life of the loan.
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
Projected Cash Flow Statement can be used to determine if an investment is financially feasible.
True
Rate of inflation is the percentage rate of increase in inflation
True
Farm land is considered as a non-depreciable asset.
True
If a loan is fully amortized it will have unequal periodic payments including principal and interest.
True
Interest can be deducted from taxable income
True
Interest can be deducted from taxable income.
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
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
Stock investors are in a residual position in regards to claims on income and assets.
True
Rebecca Smith just graduated from college and received a job managing a ranch. Her salary will be $35,000 per year. If she is guaranteed a 5% raise each year, what will the salary be in 25 years?
$118,522
Suppose that the inflation rate is 2% and the real terminal value of an investment is expected to be $82,500 in 4 years. Calculate the nominal terminal value of the investment at the end of year 4.
$89,301
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
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
Parents want to save $250,000 for their child's college education. They plan to make fifteen equal year-end payments and expect to earn an 8 percent annual interest rate. How much will they have to invest annually to accumulate the $250,000?
$9,207
The purchase price on a piece of land is $650. The marginal tax rate is 8% and the nominal terminal value is $967. There is an inflation rate of 4% and a growth rate of 3%What is the nominal after-tax terminal value?
$941.64
The purchase price on a piece of land is $700. The marginal tax rate is 6% and the nominal terminal value is $983. There is an inflation rate of 4% and a growth rate of 2%. What is the nominal after-tax terminal value?
$966.02
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
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
Under general accounting procedures total liabilities plus equity must be _________ assets.
Equal to
________ represents the claims of owners of the assets.
EquititesX
What phase of the strategic management process might be aided by the use of a SWOT analysis?
Evaluating the environment
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 leveraged Lease is a form of leasing that combines the hiring of labor services with the use of the tangible asset.
F
A primary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.
F
Accounting Methods are used to evaluate the future directions of a firm.
F
After several years, net returns will grow and the financing gap (net returns to land minus the loan payment) will increase.
F
An enterprise budget helps farm owners/managers evaluate the financial effect of incremental changes.
F
An income statement and a cash flow budget can be used to measure the firm's financial performance at a specific point in time.
F
An income statement and a cash flow budget can be used to measure the firm's financial position at a specific point in time.
F
An investment is unacceptable if IRR is greater than required rate of return.
F
Annual Depreciation (D) is multiplied by (1-marginal tax rate) to get the tax savings from depreciation.
F
Annuity is a series of payments of changing amounts for a specified number of periods.
F
Assuming that an annual interest rate is 8%, an investor would be indifferent between $700 today and $15,000 in 55 years from today. Holding everything else constant.
F
Bonds promise an uncertain payment per period and returns principal at maturity.
F
Both interest and principal amounts can be deducted from taxable income.
F
Capital Budgeting is a chronological overview of expected cash income and expenses over a given period of time.
F
Capital Budgeting is a series of payments of a fixed amount for a specified number of periods.
F
Capital Budgeting is the process of planning asset expenditures whose returns are expected to extend within one year.
F
The Tax savings from Depreciation is subtracted from the cash flows when calculating the NPV using the component method
F
The after-tax discount rate is the before tax discount rate multiplied by the marginal tax rate.
F
The annuity equivalent method provides the annual annuity over the economic life of the investment that results in a present value equal to the future value of its projected cash flow stream of the investment.
F
The book value of a contract is the present value of future payments of any contract discounted at the market rate.
F
The calculation for payback period is the same regardless of whether the projected cash flows are uniform or non-uniform.
F
The conversion period is the length of time it takes to retire the principal of a loan.
F
The correct Internal Rate of Return is found when the Net Present Value is equal to 1.
F
The effective rate is calculated before the APR.
F
The first step of the strategic management process is to formulate objectives.
F
The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant.
F
The future value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.
F
The future value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.
F
The last step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement.
F
The life cycle effect uses information about past, present, and expected business performance comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.
F
The market interest rate is the interest rate stated on a bank promissory note
F
The market interest rate is the interest rate stated on a bank promissory note.
F
The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate.
F
The maturity of debt securities traded in the money market is more than 1 year.
F
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.
F
The present value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.
F
The present value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.
F
The price of a bond goes down as interest rates go down.
F
The price of bond and the interest rate are positively correlated.
F
The return provided by a $100 ordinary annuity deposited for 10 years that results in a future value of $1,593.74 is 15%.
F
The secondary market is the part of the capital market that deals with issuing of new securities.
F
The theory of accounting is the concern with how individuals and firms allocate resources through time.
F
The uniform series future value factor [USFV(PV,N)] is based on beginning of period cash flows. With PV being the present value and N being the number of periods.
F
The yield on an investment is always equal to the discount rate used to calculate the NPV.
F
There are several types of rates that are discussed in terms of determining cost of debt, some of which include: simple rate, compound rate, agency rate, real rate, actuarial rate, annual percentage rate, effective rate and contractual rate.
F
This interest rate per conversion period is called the effective interest rate.
F
When choosing the best investment when using credit rationing it is important to rank the investments using the annuity equivalent form lowest to highest.
F
When finding the after-tax net return it is not important to discount with the after-tax discount rate.
F
When finding the prepaid interest the points are divided by the loan principal.
F
When finding the present value of tax savings from depreciation it is important to use the before- tax discount rate.
F
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 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.
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. The present value of the after-tax net returns is $31,832.
True
Tax Savings from interest can be found by multiplying the marginal tax rate by the interest paid.
True
Which of the following is not a participant in financial markets?
all of the answers are participants: (individuals, government, institutional powers, businesses)
Which of the following is not a characteristic of farmland?
high ownership turnover
For mutually exclusive investments, the investment with the __________ annuity equivalent should be chosen.
highest
The primary market is facilitated by
investment banking
An annuity:
is a level stream of equal payments through time.
The ___________ is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, it is the percentage taken from your next dollar of taxable income above a pre-defined income threshold.
marginal tax rate
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
Goals are expressed as a goal or utility function containing three elements. What are the three elements?
profitability liquidity risk
Investment Analysis is a producer for evaluating the effects of investment choices on a business's profitability, ______, and liquidity.
risk
What does PREM stand for?
risk premium
Risk-adjusted Discount rate is established by adding a risk premium to the ______ rate when investments are known to be risky and the investor is risk averse.
risk-free
_________ 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
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
The internal rate of return for a project will increase if:
the initial cost of the project can be reduced.
Incremental cash flows are taxed using:
the marginal tax rate
Accepting positive NPV projects benefits the stockholders because:
the present value of the expected cash flows are greater than the cost
Accepting positive NPV projects benefits the stockholders because:
the present value of the expected cash flows are greater than the cost.
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
To check financial feasibility, we only need to look at NCF (net cash flow before debt).
true
The present value of cost is equal to the initial cost.
True
To check financial feasibility, we only need to look at NCF (net cash flow before debt)
True
To check financial feasibility, we only need to look at NCF (net cash flow before debt).
True
Unlike using IRR, selecting projects according to their NPV will always lead to a correct accept rejection decision.
True
n the context of profitability, an investment is acceptable if the Net Present Value is zero or greater.
True
nominal cash flows should be discounted with the nominal discount rate
True
x cash flow statement can be used to determine if an investment is financially feasible
True
____ Series is the payment series that their payment and interest rates are equal in each conversion period.
Uniform
Incremental cash flows are taxes at one's capital gains tax rate.
False
The nominal interest rate doe not account for the loss of value due to inflation
false
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
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.....
Which one of the following has the largest future value if $1,000 is invested today?
8 years with a compound annual interest rate of 8%
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?
$1,000
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
What is the future value of $1,000 today if it draws interest at 8% compounded annually for 10 years?
$2,159
Consider a bond with a Par Value of $1,000. It pays a coupon of 10% and the coupon is paid quarterly. It matures in 5 years. The market rate is 12%. Calculate the book value of the bond.
$1,000.00
What would you be willing to pay for an annuity that paid you $150 at the end of each of the next 15 years? Assume savings account pays 12% compounded annually.
$1,022
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
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
he future value at the end of 11 years of $500 invested today at an interest rate of 8% is
$1,165.92
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
The equivalent in leasing to a down-payment on a credit purchase is _____________
Both a. and b
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
What would be the future value of a CD of $1,000 for two years if the bank offered a 10% interest rate compounded semi-annually? Pick the closest answer.
$1,720
A farmer is considering borrowing money from a bank. Given the following information: -Initial loan amount is $35,000. -The loan will be fully amortized in 3 years at 11%. -Marginal tax rate is 20%. What is the value of loan payment per period?
$14,322.46
A machine is purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 13th year if the depreciable life is 12 years, the life of the machinery is 14 years and straight-line depreciation is used?
$0 Solution: 12 yr depreciable life; no allowable depreciation in the 14th year
Future Semiconductors is evaluating a new etching tool. The equipment costs $1.0m 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
What would you be willing to pay for an annuity that paid you $200 at the end of each of the next 30 years? Assume savings account pays 10% compounded annually.
$1,885
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
Suppose that a $3,900/ acre loan is expected to be fully amortized at 25% over 15 years. Calculate the amount of loan payment per period.
$1010
A farmer is considering the purchase of additional farmland. Given the present value of after-tax net return of $70.46, a marginal tax rate of 10%, a terminal value of $493.58, and an after-tax discount rate of 18.92%. This farmer is planning on selling the land in 15 years. What is the maximum price this farmer should be willing to pay for an acre of land?
$104.26
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
If you borrowed $120,000 to buy a house and financed it at 10 percent annual interest for thirty years, what is your annual mortgage payment assuming that you make equal year-end payments?
$12,730
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?
$1200
Given the following information: Annual loan payment=$44,100 Number of remaining periods=4 Interest rate=9% What is the book value of the loan?
$142,659.09
Suppose that net returns are $900 per acre and expected rates of return are 5%, then the estimated land value per acre is:
$18000 900/.05
Suppose that the initial cost of an investment is $75,000, the present value of tax savings 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?
$19,059
What is the real price of a truck in 15 years if the nominal price is $30,000, and the inflation rate is 3%?
$19,255.86
Suppose you have the opportunity to purchase a 7-year annuity that pays you $2,000 per year starting in one year for each of the next seven years and you can purchase the annuity for $11,000. Suppose you take the $11,000 today and put this money in a bank account paying 6% interest. Calculate how much money you have in your bank account at the end of 10 years.
$19,699
Suppose you have been hired by Aggie-Business. They are willing to pay you a signing bonus of $2,000 per year starting in one year for each of the next seven years (7-year annuity) or a lump-sum bonus today of $11,000. Suppose you take the 7-year annuity and put this money in a bank account paying 6% interest for 10 years. How much money will you have in your bank account at the end of 10 years? (Hint: (1) Calculate how much money you have in your bank account at the end of 7 years. (2) Then, calculate how much money you have in your bank account at the end of 10 years.)
$19,994
Suppose you have the opportunity to purchase a 7-year annuity that pays you $2,000 per year starting in one year for each of the next seven years and you can purchase the annuity for $11,000. Suppose you take the 7-year annuity and put this money in a bank account paying 6% interest for 10 years. How much money will you have in your bank account at the end of 10 years? (Hint: (1) Calculate how much money you have in your bank account at the end of 7 years. (2) Then, calculate how much money you have in your bank account at the end of 10 years.)
$19,994
Given the following loan information: Annual loan payment=$47,100 Number of remaining periods=6 Interest rate=12% What is the book value of the loan?
$193,647.28
How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded monthly?
$2,219.64
Suppose that the marginal tax rate is 10%. If a farmer decides to purchase a new combine, it will increase the operating receipts by $7,500 per year and also increase his expenses by $5,000 per year for maintenance. What is the annual after-tax return generated by this investment for each year?
$2,250
What is the future value of $750 today if it draws interest at 10% compounded annually for 12 years?
$2,354
If $2000 is invested today at 6%, in 3 years the future value would be
$2,382
How much is an oil well worth today if it will pay royalties of $25,000 per year at the end of the next 12 years and will be sold for $250,000 at the end of the 12th year? Assume that the interest rate is 8% compounded monthly.
$2,405,598.66
Tyler would like to send his parents on a cruise for their 50th wedding anniversary. He expects the cruise will cost $15,000 and he has 5 years to accumulate this money. How much must Lance deposit at the end of each year in an account paying 10 percent interest in order to have enough money to send his parents on the cruise? Pick the closest answer.
$2,457
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
Assume that the terminal value of an investment is $27,500. This purchase has a cost of $50,000 with a marginal tax rate of 13%. This investment has an annual depreciation of $4,000. It is required at least a 10% pretax rate of return on capital. What is the present value of after-tax terminal value after 4 years?
$20,303
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
What is the NPV of an investment that costs $95, promises to pay $125 in one year, and the rate of return on comparable investments is 8%.
$20.74
Suppose that the firm Aggie Alfalfa has a hay field that they are willing to sell today. The net annual returns to the hay ield are expected to be $35,000 per year for the next 15 years. At the end of 15 years, it is expected that the land will sell for $25,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 14%.
$218,478
Assume that the terminal value of an investment is $27,500. This purchase has a cost of $50,000 with a marginal tax rate of 13%. This investment has an annual depreciation of $4,000. What is the after-tax terminal value after 4 years?
$28,345
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
The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is: Pick the closest answer.
$3,045
How much money would you have in your bank account in 10 years if $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
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
What is the future value of $1,250 today if it draws interest at 6% compounded annually for 17 years?
$3,366
A rancher purchased a new trailer for $10,000. The bank is willing to loan him $6,000. The terminal value of this investment is $3,500. There is a marginal tax rate of 15%, a growth rate of 4%, and a discount rate of 12%. What is the after-tax terminal value of this investment?
$3,575
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
Rick plans to fund his individual retirement account with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Rick can earn 10% of his contributions, how much will he have at the end of the 10th year?
$31,875
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 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 is $88,000. -The loan will be fully amortized in 3 years at 12%. -Marginal tax rate is 20%. What is the loan payment per period?
$36,638.71
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
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
Consider a bond with a par value of $1,500. It pays a coupon of 10% (annual) and the coupon is paid quarterly. It matures in 8 years. What is the coupon payment?
$37.50
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
What is the nominal price of a truck is 15 years if the real price is $25,000, and the inflation rate is 3%?
$38,949.19
Assume that the real net return of an investment is $35 per acre with a growth rate of 3% each year and an inflation rate of 4%. What is the real net return in the 3rd year?
$38.25
An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 20% over the next 5 years & it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $40,000 at the end of 4 years.(a 4-year project) What is the after-tax terminal 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 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
The An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 20% over the next 5 years & it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $40,000 at the end of 4 years. What is the after-tax terminal value of this investment if the initial cost is $60,000.
$39,200
David plans to fund his individual retirement account with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Shannon can earn 10% of his contributions, how much will he have at the end of the 10th year?
$39,844
Suppose that the marginal tax rate is 25%. If a farmer decides to purchase a new combine, 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 return generated by this investment for each year?
$4,000
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
A farmer is taking out a 20-year loan of $30,000 with equal principal annual payments and an interest rate of 12%. Growth rate of farm returns are expected to be 4% per year. What is the total payment in the 5th year?
$4,380
Suppose that the marginal tax rate is 15%. 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
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
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
Suppose that net returns are $700 per acre and expected rates of return are 15%, then the estimated land value per acre is:
$4666.67
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
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
How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded quarterly?
$5,407.18
How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded monthly?
$5,496.06
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
What is the present value of $1,250 that is to be received 7 years form today and interest rates are 14% compounded annually?
$500
What is the present value of $1,000 that is to be received 5 years from today and interest rates are 12% compounded annually?
$567
Given the following loan information: Annual loan payment = $18,000 Number of remaining periods = 4 Interest rate = 10% What is the book value of the loan?
$57,057.58
Suppose you are considering the purchase of an investment. The Cash Revenues for this investment is $10,000 and the Cash Expenses in $3,000. Given the marginal tax rate is 23%, what is the after-tax net returns.
$6,090
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
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 that the initial cost of an investment is $50,000, the present value of tax savings 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 five years is 25%. What is the break-even price of operating receipt?
$6,481
Pasture land in the Brazos County is selling for $3,000 per acre. If the value increases 4% per year, what will the value be in 20 years?
$6,573
When you retire, you want to have $750,000 saved. If you plan to retire in 30 years, and you can receive 8% interest annually on a savings account, what is the fixed amount you have to save each year?
$6,621
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
A bank has agreed to lend you $627,000 for a home loan. The loan will be fully amortized over 25 years at 15.49%, with .41 points. The loan payments will be monthly. The closing cost is estimated to be $2,237 and you plan to refinance the mortgage in 5 years. Calculate the book value at the end of the 5th year.
$615,871.65
As a graduate at 29 from Texas A&M, you will receive a signing bonus of $12,000 to go to work for a large investment company. If you save the money until you retire at 65 what would the value be at the time assuming a 12% rate of return?
$709,627
A farmer borrowed money to purchase a combine 4 years ago. The annual loan payment is $28,000, the interest rate is 8% and there is 3 years left on the loan. How much money does the farmer still owe on the loan?
$72,158.72
Rebecca Smith just graduated from college and received a job managing a ranch. Her salary will be $30,000 per year. If she is guaranteed a 5% raise each ear, what will her salary be in 20 years?
$79,599
Assume that the real net return in the third year is $75 with a growth rate of 3%, inflation rate of 2%, and a tax rate of 4%. What is the nominal net return in the third year
$79.59
Assume that the real net return in the third year is $75 with a growth rate of 3%, inflation rate of 2%, and a tax rate of 4%. What is the nominal net return in the third year?
$79.59
Suppose you buy a truck for $37,000 and sell it for $5,700 in 5 years. What is the annualized cost (capital recovery) if interest rates are 7%?
$8,033
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
Suppose that the inflation rate is 4% and the real terminal value of an investment is expected to be $70,000 in 4 years. Calculate the nominal terminal value of the investment at the end of year 4.
$81,890
J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the total present value of the bond's coupon payments?
$815.56 Solution: N:20 %:7.5 PV: ? PMT: 1000*.08 FV:0
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
A bank has agreed to lend you $840,100 for a home loan. The loan will be fully amortized over 52 years at 10.61%, with .3 points. The loan payments will be monthly. The closing cost is estimated to be $4,542. Calculate the loan principal.
$847183.55
How much is an oil well worth today if it will pay royalties of $25,000 per year at the end of the next 12 years and will be sold for $250,000 at the end of the 12th year? Assume that the interest rate is 8% compounded quarterly.
$863,462
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
A farmer borrowed money to purchase a tractor 5 years ago. The annual loan payment is $25,800, the interest rate is 22% and there are 8 years left on the loan. How much does the rancher still owe on the loan?
$93,377.10
A tractor with a cost of $75,000 has a depreciable life of 12 years. There is a marginal tax rate of 15%, and interest rate of 8%, and a pretax discount rate of 10%. What is the tax savings from depreciation?
$937.50
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
Calculating annual Depreciation for capital budgeting using straight-line depreciation, one should use the following formula:
(Cost Basis)/Depreciable LIfe
Calculating annual depreciation for capital budgeting using straight-line depreciation, one should use the following formula:
(Cost Basis)/Depreciable Life
A farmer wants to borrow $45,600 for an irrigation system. The loan would be fully amortized over 6 years at 14% interest. (i) What is the annual loan payment? (ii) What is the remaining principal balance on the following loan at the end of 4 years?
(i) $11,726.38 (ii) $19,309.37
A farmer wants to borrow $34,400 for a squeeze chute. The loan would be fully amortized over 16 years at 15% interest. (i) What is the annual loan payment? (ii) What is the remaining principal balance on the following loan at the end of 7 years?
(i) $5,777.40 (ii) $27,567.35
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the principal payment in the 1st year? (ii) What is the principal payment in the 2nd year?
(i) $72,682.87 (ii) $82,858.47
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
The internal rate of return (IRR):
-is the rate that causes the net present value of a projected to exactly equal zero. -is the rate generated solely by the cash flows of an investment.
Given the following information: The rate of return on assets (Ra): .12 The cost of debt (i): .03 The standard Deviation of Ra (σ): .07 The Tax Rate (t): .20 Calculate the difference between the expected rate of return to equity if leverage increased from 1 to 3.
.144
Consider a project with the following stream of cash flows. Year: Cash Flow o: +80 1: -388 2: +700 3: -557 What's the IRR of the project?
0%, 10%, 25%, 50%
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%
When solving for the future value of an amount deposited now, which one of the following factors would not be a part of the calculation?
1 divided by the sum of 1 plus the interest rate
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 $32,000 per year but will also increase real operating expenses by $21,000. Suppose that the inflation rate is 2.5% and the marginal tax rate is 20%. 1. What is the nominal net return at the end of year 4? 2. Calculate the nominal after-tax net return at the end of year 4.
1. $12,142 2. $9,714
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
A farmer wants to borrow $97,000 for a tractor. The loan would be fully amortized over 20 years at 14% interest. 1. What is the annual loan payment? 2. What is the remaining principal balance on the following loan at the end of 15 years?
1. $14,690.94 2. $50,435.18
Given the following information: Nominal Initial Cost = $90,500 Nominal Before-tax Net Return = $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 nominal terminal value? 2. What is the annual depreciation expense? 3. What is the nominal after-tax terminal value?
1. $141,029 2. $7,452 3. $123,382
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
As of 2015, farms were taxed at 10 percent for income up to $42,000; at 23 percent for income ranging from $42,000 to $62,000; at 30 percent for taxable income $92,000 to $120,000; at 40 percent for income $92,000 to $122,000, and so on. Suppose that you have revenues of $174,900 and operating expense of $55,700. 1. What is the amount of the taxable income? 2. How much tax is paid on the first $42,000 of the taxable income? 3. How much tax is paid on the first $62,000 of taxable income? 4. How much tax is paid on the total taxable income? 5. What is the average tax rate?
1. B 2. A 3. A 4. B 5. C 6. C
If a farmer is granted a loan for $3,000, with a 6 years of fully amortized monthly payments of $75. What is actuarial rate?
1.82%
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%
A farmer is considering the purchase of additional land to expand operations. The marginal tax rate is 20% And He requires at least a 10% pre-tax, risk free return on capital and a 3% risk premium on projects on comparable risk. What is the after-tax, risk adjusted discount rate? r=[rbt +PREM](1-m)
10.4%
Given the following information: Before-tax, risk free discount rate = 10%; Risk premium = 3% Marginal tax rate = 20% What is the after-tax, risk adjusted discount rate?
10.4%
You are analyzing a project and have prepared the following data: 0 -169,000 1 46,200 2 87,300 3 41000 4 39000 (i) Based on the internal rate of return of _____ for this project, you should _____ the project.
10.75%; accept
Calculate the after-tax discount rate if the before tax discount rate is 15% and the marginal tax rate is 25%.
11.25%
A farmer is considering the purchase of additional land to expand operations. The marginal tax rate is 15% and He requires at least an 11% pre-tax, risk free return on capital and a 2.5% risk premium on projects on comparable risk. What is the after-tax, risk adjusted discount rate? r=[rbt +PREM](1-m)
11.48%
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
A farmer is considering the purchase of additional land to expand operations. The marginal tax rate is 20% and He requires at least a 13% pre-tax, risk free return on capital and a 3% risk premium on projects on comparable risk. What is the after-tax, risk adjusted discount rate? r=[rbt +PREM](1-m)
12.8%
How many years would it take before you had $86,307 in your bank account if you deposited $25,000 today in a bank that pays 10% interest annually?
13
How many years would it take to at least double your investment in your bank account if you deposited $40,000 today in a bank that pays 5.79% Compounded annually?
13
A bank has agreed to lend you $127,800 for a home loan. The loan will be fully amortized over 57 years at 12.98%, with .13 points. The loan payments will be monthly. The closing cost is estimated to be $2,168. Calculate the APR.
13.2184%
Calculate the after-tax discount rate if the before tax discount rate is 20% and the marginal tax rate is 30%
14%
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, risk adjusted discount rate?
15.58%
A farmer requires an after-tax risk adjusted discount rate of 18.25%. However, he expects that the inflation rate will be 2.00%. What is the real after-tax risk adjusted discount rate?
15.93%
Assume a project can be purchased for $655,358.38 ans the semi-annual cash inflows are $150,000 and $200,000 in year 1, and $250,000 and $200,000 in year 2. Calculate the annual IRR of the project.
16.06%
What is the rate of return on an investment that costs $150 and promise 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
Edelman Engineering is considering including two pieces of equipment, truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,100, and that for the pulley system is $22,430. The firm's cost of capital is 14%. Cash flows are as follows: years 1-5: Truck- $5,100 Pulley- $7,500 Calculate the IRR and the NPV for Pulley:
20%; $3,318
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 $125, and promises to pay $275 in three years?
30.06%
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%
Given the following information: Before- tax, risk free discount rate = 15%; After-tax, risk adjusted discount rate = 15.58% Marginal tax rate = 18% What is the risk premium?
4%
What is the yield on an investment that costs $110, and promises to pay $115 in one year?
4.5%
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
If $1,000 invested for eight years is worth $1,594 at the end of the eighth year, what is the annual compound growth rate for this investment?
6%
What interest rate would a bank have to pay on a $25,000 deposit if you wanted to withdraw $56,305 from your bank account in 12 years? Assuming that interest is compounded yearly.
7%
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 $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%
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 5 years. Calculate the annual yield on the bond if the price of the bond is $960.44.
9%
Given the following information: required rate of return = 15% after-tax, risk free discount rate = 15.58% marginal tax rate = 18% r=[r^bt+PREM](1-m) What is the risk premium?
9.02%
Assume you can buy a new car, currently selling for $27,000 by putting $3,000 down and making payments of $500 per month for 60 months. What is the annual rate of interest you would be paying?
9.168%
The yield on a bond is 15% and inflation is expected to be 5%. Calculate the real interest rate on the bond.
9.52%
A farmer has recently bought a land for $700.00 and planned on selling the land in 3 years. The real price of land is expected to increase at 4% each year. Suppose that the inflation rate is 11% and the marginal tax rate is 12%. (i) Calculate the real land price. a. $787.40 b. $632.66 c. $468.17 d. $556.74 e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the before-tax nominal terminal value. a. $1,076.88 b. $700.79 c. $787.40 d. $692.92 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the after-tax-nominal terminal value. a. $742.18 b. $907.86 c. $947.65 d. $1,031.65 e. None of the answers are correct
A A D
__________ 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
Farmer Joe is considering the purchase of a new tillage implement, which if bought would reduce the number of labor hours and fuel costs used during spring cultivation. This investment would fall under which of the following categories?
Adoption of cost-reducing investment to produce a given volume of output
The capital budgeting process involves
All of the above: identifying potential investments, analyzing the set of investment opportunities, and identifying those that will create shareholder value, implementing and monitoring the selected investment projects
Sacramento Paper is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 12 percent, while Project B has an IRR of 14 percent. The two projects have the same risk, and when the cost of capital is 7 percent the projects have the same net present value (NPV). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the following statements is most correct?
All of the statements above are correct: (If the cost of capital is 13 percent, Project B's NPV will be higher than Project A's NPV. If the cost of capital is 9 percent, Project B's NPV will be higher than Project A's NPV. If the cost of capital is 9 percent, Project B's modified internal rate of return (MIRR) will be less than its IRR.)
____________ : An actuarial representation of the total financing cost of credit expressed as a percent per annum.
Annual percentage rate (APR)
The __________ method determines the size of annual annuity for the economic life of the investment that could be provided by a sum equal to the present value of its projected cash flow stream, given the firm's cost of capital.
Annuity-equivalent
The written summary by a qualified individual setting forth an estimated value of a specific asset or group of assets, usually used in reference to real estate.
Appraisal
Assets, liabilities and equity is generally recorded on a firm's __________.
Balance Sheet
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
_____ is the risk that a business will experience a period of poor earnings from poor yield or low commodity prices.
Business Risk
Investment analysis is also known as __________________?
Capital Budgeting
___________ is the orderly sequence of steps that produces information relevant to an investment choice.
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
High risk reaps a high return is not one of the keys to financial investing.
F
Human Resource management involves the protection of equity capital from risk.
F
The manager must generate sufficient investment opportunities primarily to___________?
Efficiently utilize all retained income
One method of simplifying the analysis between ownership and leasing is accomplished by eliminating __________________.
Elements that are similar between the two (i.e. maintenance & labor)
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
"Maintenance and Replacement," "Bond Selection," and "Income Generating" are categories of alternative investments.
F
A dollar's value today is lessor than when compared to its value tomorrow.
F
A futures contract is a contingent claim. It gives holders the right to buy or sell something at a specific period during a period of time.
F
An enterprise budget helps farm owners/managers evaluate the financial effect of incremental changes
False
An income statement and a cash flow budget can be used to measure the firm's financial performance at a specific point in time.
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
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
Efficient Markets mean that it is possible to forecast future values of stock prices.
False
Equity costs decrease as debt increases because of lower financial risk associated with higher financial leverage.
False
Farmers who lease much of the land they operate generally can have lower debt-to-asset ratios than owner-operators.
False
Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go up faster than the cost of equity capital.
False
Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go up.
False
Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets, leverage goes down.
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
The present value will be greater if the interest rate in a uniform annuity is greater, 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 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 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 real interest rate accounts for the loss of value due to inflation.
False
Investment analysis considers all of the following except _________.
Fixed expenses
In order to accept an investment per the IRR evaluation method the IRR must be _____________ the required rate-of-return.
Greater than
Which is the second stage of the firm's life cycle?
Growth
.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
Which of the following was not responsible for the 1980s farm crisis?
High exchange rates for foreign currencies in the previous decade
Payback period is described by the following mathematical expression.
I/E
The internal rate of return (IRR): I. rule states that a typical investment project with an IRR that is less than the required rate should be accepted. II. is the rate generated solely by the cash flows of an investment. III. is the rate that causes the net present value of a project to exactly equal zero. IV. can effectively be used to analyze all investment scenarios.
II and III only
What is the first step that produces relevant information to an investment choice?
Identification of investment alternatives
The investment decision process include
Identify Alternative Investments Collect Relevant Information Layout Cash Flows Analysis
Future Value is how much a current sum of money will be worth at a future date assuming a certain ____ rate.
Interest
The basic price that equates the demand and supply for loanable funds in financial markets is the
Interest Rate
________ is the period of time that principal accrues interest before interest is added to principal.
Interest periodX
A procedure for evaluating the effects of investment choices on a business's profitability, risk, and liquidity is known as __________.
Investment analysis
The internal rate of return can also be referred by the following names EXCEPT
Marginal utility of capital
The long run objective of financial management in a corporation is to
Maximize the value of firm's common stock
Formulating objectives involves interpreting the ___________________ in terms of specific targets.
Mission Statement
What does MARCS stand for?
Modified Accelerated Cost Recovery System
The primary market is facilitated by
NOT "individuals"
What is the NPV of an investment that costs $95, promises to pay $125 in one year, and the rate of return on comparable investments is 8%.
NOT $115.75
Assume that the terminal value of an investment is $25,000. This investment has a cost of $45,000 with a marginal tax rate of 15%. This purchase has an annual depreciation of $3,500. What is the after-tax terminal value after 7 years?
NOT $24,775
Which of the following does not characterize NPV?
NPV does not explicitly incorporate risk into the analysis
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
The investment decision process includes
None of the above: Maintenance, Replacement, Bond Selection
Farmer Joe is evaluating three investment opportunities with the following IRR values, 8%, 10% and 12%.
Not enough information
Large corporate firms may consider sales of preferred or common stock as a means of:
Raising new equity capital
In most scenarios, the ________________ approach is more likely to be reliable.
POA
An investment that can be readily put-off or deferred to a later period is ____________.
Postponable
Discounting is the process of finding ____ values.
Present
Profitability depends on the comparison of the _________ values of after-tax cash flows for the various financing methods
Present
The time value concept/calculation used in amortizing a loan is
Present Value of an annuity
A famous basketball player is awarded a contract that stipulates equal payments to be made monthly over a period of five years. To determine the value of the contract today, you would need to use
Present value of an annuity
The figure below shows the NPV profile for two investment projects. (sorry) Refer to NPV Profile. The NPV of which project is more sensitive to the discount rate?
Project 1
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
Project X and Project Y are two mutually exclusive projects. Project X requires an initial outlay of $37,990 and generates a net cash flow of $14,050 per year for six years. Project Y requires an initial outlay of $51,950, and will generate cash flows of $15,450 per year for eight years. Which project should be chosen? (Assume that the discount rate for both projects is 10 percent).
Project Y
Jon and Robb 25% 55% 20%
Remodel E: 4700 SD: 27767 CV: 1693 Build E.: 47000 SD: 80722 CV: .582X
Compounding converts a present amount into an equivalent future amount.
T
A projected cash flow statement can be used to determine if an investment is financially feasible
True
Why may lease-purchase agreements useful in the process of acquiring an asset?
They allow equity to be built in the asset without the need for outside financing
Which is the final stage of the firm's life cycle?
Transfer
"Income Generating," "Cost Reduction," and "Maintenance and Replacement" are categories of alternative investments.
True
Suppose you want to borrow $220,000 to purchase a house. Two banks, Wells Fargo and Bank of America, are willing to lend you the money. Both Banks will amortize the loan over 30 years and the payments will be monthly. Wells Fargo will lend you the money at 4.5% with 0.5 Points. Bank of America will lend you the money at 4.25% but will charge 2 Points. i. Which Banks should you choose if the loan is refinanced in 5 years? a. Wells Fargo b. Bank of America Enter Response Here:[i] ii. Which Bank should you choose if the loan is refinanced in 20 years? a. Wells Fargo b. Bank of America Enter Response Here:[ii] iii. What is the APR on the Bank of America loan if the loan is refinanced in 20 years. a. 4.62% b. 4.55% c. .385% d. None of the answers are correct Enter Response Here:[iii]
a a a
If it is given that the loan amount is $320, the percent stock requirement is .08, and the credit fee is 10.81. (i) Calculate the loan principal. a. $359.57 b. $361.23 c. $360.97 d. $360.34 Enter Response Here: [i] (ii) Calculate the required stock purchase. a. $30.38 b. $28.77 c. $29.57 d. $28.21 Enter Response Here: [ii]
a b
Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate of 25%, assigns a 2% risk premium to investments, and expects inflation to be 3% per year over the next 10 years. This farmer calculates the NPV of his new investment to be -$50,000 based on an investment life of 10 years. (i) Calculate the real discount rate. a. 9.47% b. 12.75% c. 7.74% d. None of the answers are correct Enter Response Here:[i] (ii) Calculate the real annuity equivalent. a. $9,492 b. $5,298 c. $7,953 d. None of the answers are correct Enter Response Here:[ii]
a c
A farmer is thinking about investing in a center pivot irrigation system to irrigate 80 acres of land in Fresno. With an irrigation system, operating expenses would increase by $75 per acre due to electricity, maintenance and additional labor. It is estimated that the irrigation will increase yields and thus operating receipts by $150 per acre. The cost for drilling a well would be $8,200 and the cost for the center pivot irrigation system would be $31,000. The irrigation system would be ¼ mile long and would irrigate 80 acres. Suppose that the farmer wants to evaluate this investment over a five-year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $31,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 15%. The IRS will allow the farmer to depreciate the investment using straight line over 15 years. Assume that the terminal value of this investment is $31,000 at the end of five years. The farmer requires a 10% return to capital (pretax). (i) Calculate the Initial Cost a. $39,200 b. $22,800 c. $31,000 d. $8,200 Enter your response here[a] (ii) Calculate the after-tax net returns a. $10,200 b. $12,000 c. $5,100 d. $75 Enter your response here[b] (iii) Calculate the tax savings from depreciation a. $310 b. $392 c. $2,221 d. $2,613 Enter your response here[c] (iv) Calculate the after-tax terminal value a. $29,450 b. $33,320 c. $26,350 d. $30,270 Enter your response here[d] (v) Suppose that the discount rate is 8.5%. Using information from your answers above, what is the NPV for the investment? a. $1,835.39 b. $4,680.59 c. $2,572.93 d. $4,104.83 Enter your response here[e]
a c b d c
The sources of price information are -bankers -farmers -extension agents -none of the above -all of the above
all of the above
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:
accepted because the profitability index is greater than 1
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:
accepted because the profitability index is greater than 1.
Annual Percentage Rate (APR) is the interest rate per year. It is found by expressing the _____on an annual basis.
actuarial interest rate
The capital budgeting process includes
all of the above
The capital budgeting process involves
all of the above
Truth in Lending requires creditors to inform borrowers precisely and explicitly of the total amount of the finance charge that they must pay and the______.
annual percentage rate of interest
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
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
The _______ is total taxes divided by total taxable income.
average tax rate
A farmer has recently bought a land for $1,900.00 and planned on selling the land in 16 years. The real price of land is expected to increase at 3% each year. Suppose that the inflation rate is 15% and the marginal tax rate is 20%. (i) Calculate the real land price. a. $1,598.84 b. $3,048.94 c. $1,390.00 d. $2,354.96 e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the before-tax nominal terminal value. a. $3,048.94 b. $2,591.60 c. $28,530.85 d. $2,439.15 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the after-tax-nominal terminal value. a. $22,824.68 b. $18,563.74 c. -$2,277.23 d. $23,204.68 e. None of the answers are correct
b c d
Mr. Agirich has the opportunity to purchase some farm land at $2,000/acre. He expects that real land prices will increase at 4% per year and inflation will be 3%. His pretax risk adjusted discount rate is 14%. Assume that the land will be sold in 10 years and the marginal tax rate is 23%. The effective interest rate on land loans is 5%. (i) Calculate the after-tax risk adjusted discount rate. a. 14% b. 10.7% c. 6% d. 4.6% e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the real price of land in 10 years. a. $2,688 b. $3,258 c. $2,960 d. $7,414 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the nominal price of land in 10 years. a. $3,612 b. $9,964 c. $4,378 d. $3,979 e. None of the answers are correct Enter Response Here: [iii] (iv) Calculate the after-tax terminal value of the land. a. $2,000 b. $3,524 c. $3,979 d. $3,000 e. None of the answers are correct Enter Response Here: [iv] (v) Calculate the Present Value of the after-tax terminal value. a. $718 b. $1,429 c. $1,266 d. $1,077 e. None of the answers are correct Enter Response Here: [v] (vi) What is the approximate maximum bid price for this land? a. $2,718 b. $3,077 c. $3,429 d. $3,266 e. None of the answers are correct
b c d b c e ** partially wrong
For an investment project, if NPV=8.77 when using 11% discount rate, NPV=4.13 when using 12% discount rate and NPV=-1.55 when using 13% discount rate, then the IRR must be
between 12% and 13%
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 is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the principal payment in the 1st year? a. $61,780.44 b. $54,208.66 c. $72,682.87 d. None of the answers are correct ENTER RESPONSE HERE: [i] (ii) What is the principal payment in the 2nd year? a. $65,910.60 b. $82,858.47 c. $8,294.83 d. None of the answers are correct ENTER RESPONSE HERE: [ii]
c b
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
c d
Suppose Rich Frugal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rich decides to buy a new car and he will make a $200/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $80,000 to buy a house. The bank will lend them the $80,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rich will pay back the loan with monthly payments. Rich will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rich will put this amount in the mutual fund until he retires) (i) Calculate how much money Rich has to pay monthly on his house loan. a. $479 b. $443 c. $440 d. $679 e. None of the above ENTER RESPONSE HERE: [a] (ii) How much money can Rich put in the mutual fund monthly after paying the car and house payment? a. $521 b. $557 c. $321 d. $560 e. None of the above ENTER RESPONSE HERE: [b] (iii) How much will Rich have in his mutual fund at the end of 40 years when Rock plans to retire? Assume the car payment of $400/month is for 40 years. a. $1,954,368 b. $1,818,815 c. $1,944,491 d. $1,120,614 e. None of the above ENTER RESPONSE HERE: [c] (iv) Suppose that after retirement in 40 years, Rich plans to live another 20 years. Rich will use the money he has in the mutual fund to buy a monthly annuity. That is he will give an investor the money in his mutual fund and in turn the investor will promise to pay Rich a fixed monthly amount of principal and interest. How much money will he have to live on each month assuming that the interest rate for the annuity is 5% annually? (hint: Remember that the annuity is monthly so you need to use a monthly rate) a. $12,003 b. $12,898 c. $12,833 d. $7,396 e. None of the above ENTER RESPONSE HERE: [d]
c d a b
___________ is the orderly sequence of steps that produces information relevant to an investment choice.
capital budgeting
The __________ (sometimes called finance lease) is a long-term contractual arrangement in which the lessee acquires control of an asset in return for rental payments to the lessor.
capital lease
In the _______________ , the value of property to the "average" or "typical" manager is estimated under average production and price conditions.
capitalization approach
The types of lease arrangements that can be made through the land are
cash & share lease
Sensitivity analysis is conducted by:
changing the value of a single variable and computing the resulting change in the current value of a project
This ______________ method is based on the premise that the values of neighboring tracts of land are similar, assuming the sales do not occur under extraordinary circumstances or between family members
comparable sales
This ______________ method is based on the premise that the values of neighboring tracts of land are similar, assuming the sales do not occur under extraordinary circumstances or between family members.
comparable sales
Custom harvesting of crops, custom applications of chemicals and fertilizer, and custom or contract feeding of livestock in commercial feedlots are common examples of
custom hiring
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%. (i) What is the total interest payment for this loan? a. $25,514.24 b. $26,413.77 c. $18,318.02 d. $21,916.13 ENTER RESPONSE HERE: [i] (ii) What is the total amount of tax savings from interest on this loan? a. $4,383.23 b. $5,382.58 c. $3, 593.60 d. None of the answers are correct ENTER RESPONSE HERE: [ii]
d a
Given the following information : Nominal Initial Cost = $30,000; Nominal Before-tax Net Return = $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%. (i) What is the annual depreciation expense? a. $3,450 b. $3,750 c. $3,120 d. $3,000 enter response here: [i] (ii) What are the tax savings from depreciation? a. $450 b. $300 c. $120 d. $600
d a
A farmer is thinking about investing in a center pivot irrigation system to irrigate 100 acres of land in Fresno. With an irrigation system, operating expenses would increase by $175 per acre due to electricity, maintenance and additional labor. It is estimated that the irrigation will increase yields and thus operating receipts by $300 per acre. The cost for drilling a well would be $10,200 and the cost for the center pivot irrigation system would be $42,000. The irrigation system would be ¼ mile long and would irrigate 100 acres. Suppose that the farmer wants to evaluate this investment over a five-year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $20,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 20%. The IRS will allow the farmer to depreciate the investment using straight line over 15 years. Assume that the terminal value of this investment is $20,000 at the end of five years. The farmer requires a 11% return to capital (pretax). (i) Calculate the Initial Cost a. $31,000 b. $42,000 c. $39,200 d. $52,200 Enter your response here [a] (ii) Calculate the after tax- net returns a. $12,500 b. $10,000 c. $24,000 d. $14,000 Enter your response here[b] (iii) Calculate the tax savings from depreciation a. $696 b. $52,000 c. $3,480 d. $382 Enter your response here[c] (iv) Calculate the after-tax terminal value a. $20,000 b. $16,000 c. $4,000 d. $30,744 Enter your response here[d] (v) Which discount rate should be used for calculating the NPV of this investment? a. 8.8% b. 11% c. 11.6% d. 20% Enter your response here[e]
d b a d a
Leveraged Lease is an extension of capital leasing whose main feature is the formal involvement of a lender in providing _____ to finance the lessor's purchase of the leased asset.
debt capital
Sensitivity analysis helps you determine the:
degree to which the net present value reacts to changes in a single variable.
Net Present Value is the ____ present value of cash inflows and cash outflows associated with an investment.
difference between
Net Present Value is the ____ present value of cash inflows and present value of cash outflows associated with an investment.
difference between
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 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
Modified Internal Rate-of-return (MIRR) is the rate of interest that equates the present value of all outflows with the ____ value of all inflows.
future
When the NPV of an investment is positive, then the IRR will be:
greater than the opportunity cost of a capital
When the NPV of an investment is positive, then the IRR will be:
greater than the opportunity cost of capital.
A farmer plans on selling the land in 6 years. He thinks the real land value will be $700 in 6 years. Suppose that the marginal tax rate is 21% and the inflation rate is 8%. (i)Calculate the nominal terminal value. a.$756.00 b.$877.54 c.$847.00 d.$1,110.81 e. None of the answers are correct (ii)Calculate the after-tax terminal value. a.$840.26 b.$816.13 c.$744.24 d.$1,024.54 e. None of the answers are correct
i) D ii) D
Which of the following accurately describes the calculation for the weighted average cost of capital?
id (1-t)*D/A +ie*E/A
Expansion in farm size and income-generating capacity for most agricultural units requires a/an __________ in the land acreage under the manager's control
increase
The costs of both debt and equity eventually _________ as leverage __________.
increase/increases
Risk premium does not depend on :
individuals budget
The basic future and present value equations contain four variables. Which one of the following is not included?
inflation rates (I)
Tax basis is equal to:
initial cost basis - accumulated depreciation
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
A/An _______________ for land is the purchase price that would yield a break-even or zero net present value for a land investment.
maximum bid price
Required Rate-of-return (RRR) is the _____ expected yield by investors requires in order selecting a particular investment.
minimum
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
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.
When comparing two investments like a used squeeze chute and a new squeeze chute, this would be referred to as:
mutually exclusive investment
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
If the IRR for a project is 15%, then the project's NPV would be:
negative at a discount rate of 10%.
To calculate the NPV we use the ________ discount rate if the cash flows are nominal.
nominal
Suppose that net returns are $300 per acre and expected rates of return are 3%, then the estimated land value per acre is:
none of the above $10000
It can be argued that the most important step in the investment decisions is (Garbage in - Garbage out)
not analysis
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
While calculating annuity equivalent for comparisons it is better to use the ______ annuity equivalent.
real
The tax on capital gains of loss on an investment is
terminal gain or loss on an investment times the marginal tax rate
What is the average tax rate
total tax paid on income/ income
Returns to Assets is a measure of profitability used before interest is paid to a firm's lenders and before any withdraws or retained earnings are claimed by the firm's owners. The return of assets is measured by projecting the expected payment floe for the investment without deducting any charges for interest or loan repayments. Payments then are discounted to a present value, using a ____ of the firm's debt and equity capital as the discount rate.
weighted average cost
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
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
The purchase price on a piece of land is $600. The marginal tax rate is 7% and the nominal terminal value is $884. There is an inflation rate of 3% and a growth rate of 2%. What is the nominal after-tax terminal value?
$864.12
_______ are claims on the firms assets by lenders and other creditors.
Liabilities
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 Prices are the prices that reflect today's purchasing power at a specific point in time.
True
Real cash flows can be discounted by a real discount rate only
True
Real cash flows can be discounted by a real discount rate only.
True
Real cash flows can be discounted by the real discount rate only.
True
Real prices are the prices that reflect today's purchasing power.
True
Real prices are the prices with the general price level effect removed.
True
Risk aversion is defined by the attitude toward risk in which the investor requires compensation for taking risks.
True
Sensitivity analysis provides information on
Both a and b
Financial risk is equal to the total farm risk plus business risk.
Flase
Businesses are net Suppliers of securities.
T
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
Future Semiconductors is evaluating a new etching tool. The equipment costs $1.0m 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 Solution: NPV(15, -1, {.4,.4,.4,.4,.4,.4})
Suppose an 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; 15.2382%
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
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 market rate is 10%. Calculate the book value of the bond
$1,125
The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is: Pick the closest answer.
$1,558.14
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 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
Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized with three annual payments. The first payment will be due one year from the loan date. How much will you have to pay each year? Pick the closest answer
$10,053
Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized with three annual payments. The first payment will be due one year from the loan date. How much will you have to pay each year? Pick the closest answer.
$10,053
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
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: 1-120000 2-120000 3-150000 4-150000 5-180000 The NPV is:
$117,145
If it costs $80,000 to put a student through Texas A&M today, how much will it cost in 8 years if costs increase at an annual rate of 5 percent?
$118,196
Assume that the nominal after-tax net return for year 1: $45, year 2: $47, year 3: $49. The after tax risk adjusted discount rate is 6%, the growth rate is 3%, and the inflation rate is 4%. What is the present value of the after-tax net return?
$125.42
What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for three years, and the cost of capital is 9%?
$126,565.00
What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for three years, and the cost of capital is 9%?
$126,565.00 Solution: npv(9,0,{50000,50000,50000})
How much money would you have in your bank account in 20 years if $400 is deposited at the end of the year for each of the next 20 years? Suppose that savings account pays 5% compounded annually.
$13,226.38
With an initial cost of $850,000, after tax net return of $764,500, tax savings depreciation of $225,000, and a after-tax terminal value of $575. What is the Net Present Value?
$140,075
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
A rancher is considering the purchase of additional land. Given the present value of after-tax net return of $16.15, a marginal tax rate of 14%, a terminal value of $670.80, and an after-tax discount rate of 10.97%. This rancher is planning on selling the land in 15 years. What is the maximum price this rancher should be willing to pay for an acre of land?
$141.37
Assume that the nominal after-tax net return for year 1: $53, year 2: $55, year 3: $58. The after tax risk adjusted discount rate is 8%, the growth rate is 2%, and the inflation rate is 3%. What is the present value of the after-tax net return?
$142.27
If you can earn 10% on your money, how much should you pay today for an investment that promises to pay $175 in two years (Market Value)?
$144.63
Suppose that a $100/ acre loan is expected to be fully amortized at 15% over 35 years. Calculate the amount of loan payment per period.
$15
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
Suppose that a $1,800/ acre loan is expected to be fully amortized at 8% over 36 years. Calculate the amount of loan payment per period.
$153
If you borrowed $175,000 to buy a house and financed it at 8% annual interest for 25 years, what is your annual mortgage payment assuming that you make equal year-end payments?
$16,394
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
Suppose Mr. Agirich of Agirich Farms has made a good profit on his cotton this year and wants to put $10,000 in a savings account to pay for his son's education. The bank pays 4% compounded annually on money in savings accounts. How much will Mr. Agirich have in his savings account in thirteen years if $10,000 is put in the account today?
$16,650.74
Assume that the nominal after-tax net return for year 1: $62, year 2: $65, year 3: $68. The after tax risk adjusted discount rate is 10%, the growth rate is 3%, and the inflation rate is 4%. What is the present value of the after-tax net return?
$161.17
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 1 year?
$168
If you invest $150 and earn a rate of return of 12%, how much money will you have in one year?
$168
Suppose that the marginal tax rate is 25%. If a farmer decides to purchase a combine it will increase his revenue by $7,500 per year, but it will also increase his expenses by $1,500 per year. The before tax rate on this investment is 30%. The life of this investment is 10 years. What is the present value of the after tax net return?
$17,371
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
How much interest is gained if $175 is deposited in your bank account at the end of the year for each of the next 5 years? Savings account pays 10% compounded annually.
$193.39
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 back in 13 equal annual payments (principal and interest) at 9% interest. What are the annual payments?
$2,004
If you borrow $15,000 and pay it pack in 13 equal annual payments at 9% interest. What are the annual payments?
$2,004
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
You put $2,000 in an IRA account at Wells Fargo. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years?
$2,972
What would you be willing to pay for an annuity that paid you $575 at the end of each of the next 7 years? Assume savings account pays 8% compounded annually.
$2,994
Suppose that the inflation rate is 2.5% and the real terminal value of an investment is expected to be $20,000 in 2 years. Calculate the nominal terminal value of the investment at the end of year 2.
$21,013
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
Suppose that the firm Aggie Alfalfa has a hay field that they are willing to sell today. The net annual returns to the hay yield are expected to be $35,000 per year for the next 15 years. At the end of 15 years, it is expected that the land will sell for $25,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 14%.
$218,478
Calculate 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.
$22,027.13
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
A farmer borrowed money to purchase a tractor 6 years ago. The annual loan payment is $66,000, the interest rate is 12% and there are 5 years left on the loan. How much does the rancher still owe on the loan?
$237,915.23
An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 5 years. The marginal tax rate is 20%. The investor expects that the terminal value for the investment is $30,000 at the end of 6 years. What is the after-tax terminal value of this investment if the initial cost is $80,000.
$24,000
A farmer is taking out a 10-year loan of $25,000 with equal principal annual payments with an interest rate 12%. Inflation rate is expected to be 4% per year. What is the interest payment in the third year?
$2400
Calculate the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each month for the next 35 years? Assume that your savings account pays 8% compounded monthly
$248030.9
A farmer is considering borrowing money from a bank. Given the following information: -Initial loan amount is $66,000. -The loan will be fully amortized in 3 years at 8%. -Marginal tax rate is 15%. What is the value of loan payment per period (X)?
$25,610.21
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $66,000. The loan will be fully amortized in 3 years at 8%. Marginal tax rate is 15%. What is the value of loan payment per period (X)?
$25,610.21
The present value of an annuity of $5,000 to be received at the end of every six months for 6 years at a 4% annual rate would be (Pick the closest answer.):
$26,210
A farmer is considering borrowing money from a bank. Given the following information: -Initial loan amount is $72,000. -The loan will be fully amortized in 3 years at 13%. -Marginal tax rate is 18%. What is the value of loan payment per period?
$26,985.47
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
What is the nominal price of a tractor in 7 years if the real price is $200,000, and the inflation rate is 4%?
$263,286.36
If you could buy a bond now and five years later sell it for $40,000, what would you be willing to buy it for, assuming an 8% discount rate and no other cash flows?
$27,223
If you could buy an investment now and six years later sell it for $43,000, what would you be willing to buy it for, assuming a 7% discount rate and no other cash flows?
$28,653
How much is an oil well worth today if it will pay royalties of $25,000 per year at the end of the next 12 years and will be sold for $250,000 at the end of the 12th year? Assume that the interest rate is 8% compounded annually.
$287,680.39
What is the present value of $750 received 10 years from now if the interest rate compounded annually is 10%?
$289
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 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 that the firm CherryBlossom has an orchard they are willing to sell today. The net annual returns to the orchard are expected to be $50,000 per year for the next 20 years. At the end of 20 years, it is expected the land will sell for $30,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 16%
$297,984
Suppose that the firm CherryBlossom has an orchard they are willing to sell today. The net annual returns to the orchard are expected to be $50,000 per year for the next 20 years. At the end of 20 years, it is expected the land will sell for $30,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 16%.
$297,984
Suppose that a $1,100/ acre loan is expected to be fully amortized at 23% over 9 years. Calculate the amount of loan payment per period.
$299
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
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?
$3,333 50000/15
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?
$3,333.33
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 is $88,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 20%. What is the 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 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
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 $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 net returns are $500 per acre and expected rates of return are 12%, then the estimated land value per acre is:
$4166.67
You have just won a lottery! You will receive $50,000 a year beginning one year from now for 20 years. If your required rate of return is 10%, what is the present value of your winning lottery ticket? Pick the closest answer.
$425,700
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?
$430
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
Consider a bond with a par value of $1,125. It pays a coupon of 8% (annual) and the coupon is paid semiannual. It matures in 10 years. 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
A farmer is taking out a 10-year loan of $25,000 with equal principal annual payments with an interest rate 12%. Inflation rate is expected to be 4% per year. What is the total payment in the third year?
$4900
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
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 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 after-tax net return generated by this investment for each year?
$5,100
If land was purchased for $500 per acre and the real price of land increases at 6% each year. The marginal tax rate is 10% and the inflation rate is 4%. The land will be sold in three years. What will the real land price be in three years?
$595.51
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
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 pre-tax net return generated by this investment for each year?
$5,700 6800-1100
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
Stephen deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Stephen have on deposit at the end of the 15 years? Pick the closest answer.
$50,258
Assume that the real net return of an investment is $50 per acre with a growth rate of 2% each year and an inflation rate of 4%. What is the real net return in the 2nd year?
$52.02
Assume that the terminal value of an investment is $55,000. This purchase has a cost of $75,000 with a marginal tax rate of 20%. This investment has an annual depreciation of $2,500. What is the present value of the after-tax value after 10 years?
$54,000
A rancher borrowed money to purchase a new trailer 2 years ago. The annual payment is $8,700, the interest rate is 8% and there are 10 years left on the loan. How much does the rancher still owe on the loan?
$58,377.71
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
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 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 this investment for each year?
$6,000 7500-1500
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
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 five years is 25%. What is the break-even price of operating receipt?
$6,481
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
If the real land price is $600 in year three and the inflation rate is 3%. The marginal tax rate is 6% and the growth rate is 2%. Calculate the nominal terminal value for the third year?
$655.63
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
If land was purchased for $550 per acre and the real price of land increases at 5% each year. The marginal tax rate is 6% and the inflation rate is 3%. The land will be sold in four years. What will the real land price be at the time of the sale?
$668.53
Suppose you are considering the purchase of an investment. The Cash Revenues for this investment is $10,000 and the Cash Expenses in $3,000. Given the marginal tax rate is 23%, what is the pre-tax net returns?
$7,000
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
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
Suppose that the initial cost of an investment is $35,000, the present value of tax savings 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
Suppose you can put your money in a savings account that pays 5%, compounded annually. How much money would you have in your savings account in 23 years if you invested $2,500 today?
$7,679
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 (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
If land was purchased for $600 per acre and the real price of land increases at 4% each year. The marginal tax rate is 8% and the inflation rate is 3%. The land will be sold in five years. What will the real land price be at the time of the sale?
$729.99
Chad deposits $2,000 per year at the end of the year for the next 20 years into an IRA account that pays 6%. How much will Chad have on deposit at the end of 20 years?
$73,572
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
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
If the real land price is $650 in year five and the inflation rate is 4%. The marginal tax rate is 8% and the growth rate is 3%. Calculate the nominal terminal value for the fifth year?
$790.82
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
As of 2015, ranches were taxed at 15 percent for income up to $54,000; at 23 percent for income ranging from $54,000 to $71,000; at 28 percent for taxable income $71,000 to $89,000; at 41 percent for income from $89,000 to $320,000, and so on. Suppose that you have revenues of $221,100 and operating expense of $69,800. How much tax is paid on the first $54,000 of taxable income?
$8,100
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
When you retire, you want to have a million dollars saved. If you plan to retire in 40 years, and you can receive 5% interest annually on a savings account, what is the fixed amount you have to save each year?
$8,278
Suppose you buy a tractor for $55,000 and sell it for $10,000 in 10 years. What is the annualized cost (capital recovery) if interest rates are 10%?
$8,324
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
As a graduate at 29 from Texas A&M, you will receive a signing bonus of $12,000 to go to work for a large investment company. If you save the money until you retire at 65 what would the value be at that time assuming a 6% rate of return?
$97,768
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
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%. (i) What is the interest payment in the 1st year? (ii) What is the principal payment in the 1st year? (iii) What is the loan balance at the end of 1st year? (iv) What is the tax saving in the 1st year?
(i) $10,560.00 (ii) $26,078.71 (iii) $61,921.29 (iv) $2,112.00
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%. (i) What is the principal payment in the 1st year? (ii) What is the principal payment in the 2nd year?
(i) $15,709.97 (ii) $17,280.97
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the loan balance at the end of 1st year? (ii) What is the loan balance at the end of 2nd year?
(i) $177,317.13 (ii) $94,458.66
A rancher wants to borrow $14,300 for a trailer. The loan would be fully amortized over 17 years at 14% interest. (i) What is the annual loan payment? (ii) What is the remaining principal balance on the following loan at the end of 8 years?
(i) $2,243.89 (ii) $11,099.12
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the interest payment in the 1st year? (ii) What is the interest payment in the 2nd year? (iii) What is the total interest payment for this loan?
(i) $35,000.00 (ii) $24,824.40 (iii) $73,048.61
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 of the bond is $1,100.
-$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
You are analyzing a project and have prepared the following data (assume the discount rate is 15%): Year Cash Flow 0 -87 1 12 2 24 3 36 4 48 (i) Based on the net present value of _____ for this project, you should _____ the project.
-$7.3; reject
Given the following information: The rate of return on assets (Ra): .16 The cost of debt (i): .05 The standard Deviation of Ra (σ): .09 The Tax Rate (t): .25 Calculate the risk as defined by the standard deviation of the rate of return to equity if leverage is 1.5.
.16875
Given the following information: The rate of return on assets (Ra): .16 The cost of debt (i): .05 The standard Deviation of Ra (σ): .09 The Tax Rate (t): .25 Calculate the expected rate of return to equity if leverage is 1.5
.24375
Given the following information: The rate of return on assets (Ra): .12 The cost of debt (i): .03 The standard Deviation of Ra (σ): .07 The Tax Rate (t): .20 Calculate the expected rate of return to equity if leverage is 3.5.
.348
Given the following information: The rate of return on assets (Ra): .12 The cost of debt (i): .03 The standard Deviation of Ra (σ): .07 The Tax Rate (t): .20 Calculate the coefficient of variation of the expected rate of return to equity and risk if leverage is 3.5.
.72414
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
Mr. Agirich has the opportunity to purchase some farm land at $2,000/acre. He expects that real land prices will increase at 4% per year and inflation will be 3%. His pretax risk adjusted discount rate is 14%. Assume that the land will be sold in 10 years and the marginal tax rate is 23%. The effective interest rate on land loans is 5%. (i)Calculate the after-tax risk adjusted discount rate. a.14% b.10.7% c.6% d.4.6% e. None of the answers are correct (ii)Calculate the real price of land in 10 years. a.$2,688 b.$3,258 c.$2,960 d.$7,414 e. None of the answers are correct (iii)Calculate the nominal price of land in 10 years. a.$3,612 b.$9,964 c.$4,378 d.$3,979 e. None of the answers are correct (iv)Calculate the after-tax terminal value of the land. a.$2,000 b.$3,524 c.$3,979 d.$3,000 e. None of the answers are correct (v)Calculate the Present Value of the after-tax terminal value. a.$718 b.$1,429 c.$1,266 d.$1,077 e. None of the answers are correct (vi)What is the approximate maximum bid price for this land? a.$2,718 b.$3,077 c.$3,429 d.$3,266 e. None of the answers are correct
1) b 2) c 3) d 4) b 5) c 6) d
Suppose that Jim plans to borrow money for an education at Texas A&M University. Jim will need to borrow $20,000 at the end of each year for the next five years (total=$100,000). Jim wishes his parents could pay for his education but they can't. At least, he qualifies for government loans with a reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 2% 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 8%. Jim agrees to pay back the Longhorn Bank with 15 annual payments and the payments will be uniform (equal annual payments including principal and interest). 1. Calculate how much money Jim has to borrow at the end of 5 years to pay off the loan with AggieBank. 2. Calculate the annual payment Jim must pay to the Longhorn Bank if the first payment issue at the end of the sixth year (one-year after borrowing the money from Longhorn Bank). 3 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%.
1. $104,081 2. $12,160 3. $82,396
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
A farmer expects irrigation system will increase real operating receipts by $22,000 per year but will also increase real operating expenses by $5,000. Suppose that the inflation rate is 3% and the marginal tax rate is 15%. 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 5.
1. $18,035 2. $16,752
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
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 loan balance at the end of 1st year? 2. What is the loan balance at the end of 2nd year?
1. $36,290.03 2. $19,009.06
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
A farmer is considering borrowing money from a bank. Given the following information: -Initial loan amount is $95,000 -The loan will be fully amortized in 3 years at 12%. -Marginal tax rate is 25%. 1. What is the loan balance at the end of 1st year? What is the loan balance at the end of 2nd year?
1. $66,846.85 2. $35,315.14
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
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%
You are analyzing a project and have prepared the following data: Year: Cash Flow 0: -$169,000 1: $46,200 2: $87,300 3: $41,000 4: $39,000 (i) Based on the internal rate of return of _____ for this project, you should _____ the project.
10.75%; accept
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, risk adjusted discount rate?
11.48%
You are analyzing a project and have prepared the following data: Year Cash Flow 0 -87 1 12 2 24 3 36 4 48 (i) Based on the internal rate of return of _____ for this project, you should _____ the project.
11.54%; accept
Typically, how long is the normal course of business for current assets?
12 months
Farmer Joe is evaluating three investment opportunities with the following IRR values, 8%, 10% and 12%. Farmer Joe's required rate-of-return is 9% which investment should he pursue?
12%
If a farmer is granted a loan that will be paid over 3 years of fully amortized quarterly payments and there is a contractual rate of 12%. What is the APR?
12%
What interest rate would a bank have to pay on a $10,000 deposit if you wanted to withdraw $96,463 from your bank account in 20 years? Assuming that interest is compounded yearly.
12%
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 annual yield on the bond if the price of the bond is $892.66.
14%
What is the rate of return on an investment that costs $100 and promises to return $115 in one year?
15%
What is the rate of return on an investment that costs $100 and promises to return $115 in one years?
15%
A farmer is considering the purchase of additional land to expand operations. The marginal tax rate is 18% and He requires at least a 15% pre-tax, risk free return on capital and a 4% risk premium on projects on comparable risk. What is the after-tax, risk adjusted discount rate? r=[rbt +PREM](1-m)
15.58%
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 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%
Given that there is a quarterly actuarial interest rate of 4.38%. What is the annual percentage rate?
17.53%
The figure below shows the NPV profile for two investment projects. (sorry) Refer to NPV Profile. What's the IRR for project 2?
18%
On average, farmland has ownership turnover (per year) around:
2-3%
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.
Given the following information: Before-tax, risk free discount rate = 11%; After-tax, risk-adjusted discount rate = 11.48% Marginal tax rate = 15% What is the risk premium?
2.5%
The yield on a bond is 6% and inflation is expected to be 3% Calculate the real interest rate in the bond
2.91%
The yield on a bond is 6% and inflation is expected to be 3%. Calculate the real interest rate on the bond.
2.91%
How many years would it take before you had $484,012 in your bank account if you deposited $40,000 today in a bank that pays 12% interest annually?
22
What is the rate of return on an investment that costs $225 and promises to return $275 in one year?
22.22%
What is the rate of return on an investment that costs $225 and promises to return $275 in one years?
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 require an initial cash outlay of $1,000,000 and will generate a cash flow of %500,000 in each of the next three years. What is the project's IRR? Suppose a company's hurdle rate is 15%, should it accept the project?
23%; accept the project
Suppose a particular investment project will require an initial cash outlay of $1,000,000 and will generate a cash inflow of $500,000 in each of the next three years. What is the project's IRR? Suppose a company's hurdle rate is 15%, should it accept the project?
23%; accept the project
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
How many years would it take to at least double your investment in your bank account if you deposited $30,000 today in a bank that pays 3% Compounded annually?
24
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 (interest rate) on a bond is 8% and the inflation is expected to be 3%. What's the real interest rate on the bond?
4.85%
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%
How many years would it take to at least double your investment in your bank account if you deposited $20,000 today in a bank that pays 15% Compounded annually?
5
Real estate debt consistently comprises around ___________ of total farm debt.
50%
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%
Suppose that an after-tax risk-adjusted discount rate is 8.95%. The inflation rate is expected to be 2.00%. What is the real discount rate?
6.81%
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%
What interest rate would a bank have to pay on a $15,000 deposit if you wanted to withdraw $64,915 from your bank account in 17 years? Assuming that interest is compounded yearly.
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%
The investment decision process includes
A and B
The cash flow statement is broken down into _________ activities
All of the Above (operating, financing,
Information flows can be obtained from the financial statements that reports ____ of a firm
All of the above
Primary finance activities include:
All of the above
The capital budgeting process involves: identifying potential investments analyzing the set of investment opportunities, and identifying those that will create shareholder value implementing and monitoring the selected investment projects
All of the above
The investment decisions process includes
All of the above
The methods used for capital budgeting includes
All of the above
The balance sheet is a key tool for evaluating changes in which of the following items?
All of the above (Assets, liabilities, equity)
Securities can give title to
All of the above (real asset & treasury bond)
The magnitude of the compound amount in a compound interest is determined by
All of the above: (Amount of the original principal, The number of compound or the conversion periods, The rate of interest per conversion period)
The major institutional sources of loan funds for US agriculture include
All of the above: (Life insurance companies, Government agencies, Commercial banks, Farm Credit Services)
The methods used for capital budgeting includes
All of the above: (Simple rate-of-return, Pay-back period, Internal rate of return)
The cash flow statement is broken down into _________ activities
All of the above: (operating, financing, investing)
Information flows can be obtained from the financial statements that reports _______ of a firm.
All of the above: (profitability, liquidity, solvency)
Which of the following describes financing in order to acquire control of assets?
All of the above: Cash purchase, Borrowing, Leasing
Why might some investment analysts penalize the payback period method for evaluating a potential investment?
All of the above: It fails to take into account the time value of money, It disregards cash flows occurring after the payback date, It fails to measure total profitability
The ways of identifying alternative investments include
All of the above: Maintenance and Replacement, Cost Reduction, Income generating
The net present value method accounts for both the ___________________ of projected cash flows.
All of the above: Timing, Magnitude, Time value
The steps for making investment decisions include
All of the above: collect relevant information, layout cash flows, analysis
_________ 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
The farm business environment can best be described by which of the following?
Cyclical
For an investment project, if NPV=8.77 when using 11% discount rate, NPV=4.13 when using 12% discount rate and NPV=-1.55 when using 13% discount rate, then the IRR must be
Between 12% and 13%
Financial investments can be made by investing money in
Both A & B (Real goods, financial goods)
The interest rates respond to changes in _________ for alternative financial assets
Both A & B: Supply and Demand
Sensitivity analysis provides information on:
Both A and B: (whether the NPV should be trusted and may provide a false sense of security if all NPVs are positive, the need for additional information as it tests each variable in isolation.)
The four stages that a farm business passes through its life cycle include
Both A and C
The four stages that a farm business passes through its life cycle include
Both A and C: Establishment and Consolidation
Which of the following investment evaluation methods account for the time value of money?
Both B and C: Net present value and Internal rate-of-return
The capital budgeting methods that directly account for the time value of money are
Both B and C: Pay-back period & Internal rate of return
Which of the following is not a method frequently suggested for or used by business planners to evaluate investment opportunities?
Depreciation schedule
The __________ (sometimes called finance lease) is a long-term contractual arrangement in which the lessee acquires control of an asset in return for rental payments to the lessor.
Capital Lease
Unrealized changes in asset values are often referred to as ___________________.
Capital gains/losses
Budgeting Methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ______ budgets, and capital budgets
Cash Flow
Which of the following are significant tools of financial management?
Cash Flows/ Information Flows/ Strategic Management/ Capital Budgeting
Comparing beginning and year-end balance sheets allows the firm manager to assess growth in all but the following.
Cash flows
Which of the following represent a financial risk?
Changes in interest rates
The costs incurred by borrowers and sellers in completing a loan transaction.
Closing Cost
A balance is a minimum balance that must be maintained by borrower in savings account to offset a portion of the cost that a bank faces when extending a loan to a business.
Compensating
What is the third stage of the farm business life cycle?
Consolidation and maturation
Cash Flow Budgeting is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structure.
F
Choice of discount rate is controlled by the financial market.
F
Compound Interest means each time interest is paid, it is added to or compounded into the principal but does not earn interest.
F
Discounting converts a present amount into an equivalent future amount.
F
Efficient Markets mean that it is possible to forecast future values of stock prices.
F
Financing gaps are not common early on in the farm land investing process.
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%.
F
If the before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 3.36%.
F
If the conversion period of alternative loans are different, then one can use the APR rate to determine which loan has the least cost.
F
If the net present value is less than zero, be indifferent.
F
If the net present value is negative then you have made an acceptable investment.
F
If there are restraints on equity capital but no restraints on debt capital, we could finance with debt as long as returns were lower than the cost of debt.
F
In general, greater expected profits require less risk when making financial decisions.
F
In the context of profitability, an investment is acceptable if the Net Present Value is zero or less.
F
Incremental cash flows are taxed at one's average tax rate.
F
Inflation is the decrease in the general price level.
F
Interest payments on a fully amortized loan increase over the life of the loan.
F
Lease analysis is generally applied solely to real estate and no other type of asset.
F
Nominal Prices are the prices with the general price level effect removed.
F
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.
F
One of the capital budgeting methods is the Component Method. In this method, we calculate net cash flow for each period & then calculate the NPV for the investment.
F
Operating Lease is a long-term contractual arrangement in which the lessee acquires control of an asset in return for rental payments to the lessor.
F
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).
F
People use money to invest in real goods and financial goods only.
F
Points are the interest rate stated on the note
F
Portfolio risk cannot be reduced with a mix of securities and by investing in stocks with different characteristics.
F
Principal payments on a fully amortized loan decrease over the life of the loan.
F
Production management involves the acquisition and use of financial resources.
F
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.
F
Risk Aversion means the subjective tendency of investors to seek out unnecessary risk.
F
Risk Premium only depends on an individual's risk/return preference.
F
Risk and return characteristics of an individual portfolio does not depend on the individual's risk/return preference.
F
Securities give you the title to underlying real assets only.
F
Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go up.
F
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 $60,800.
F
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 $38,400.
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.
F
Suppose an investment has a life of 5 years, an after-tax discount rate of 12%, and an after-tax terminal value of $75,000. The present value of the after-tax terminal value is $132,176.
F
Suppose an 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.
F
The IRR approach may be best carried out by performing calculations by hand.
F
Capital leases are also sometimes referred to as ___________________.
Finance Leases
The combination of debt and equity reflects the firm's capital structure or _____________?
Financial leverage
What kind of loan is set up with equal payment composed of principal payments and interest and is used to fully repay the loan and interest during its period to maturity?
Fully amortized
A contract for the sale of a good at some point in future at a specified price is known as a(n)
Futures contract
What does GAAP stand for?
Generally Accepted Accounting Principles
What does GAAP stand for?
Generally Accepted Accounting Principles.
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
he compound annual return on a project is known as its:
IRR
The growth phase of the farm business life cycle refers to growth in ______________.
Income generation
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
Why is the internal rate-of-return method generally considered a superior method for evaluating an investment?
It takes into account the time value of money
Which of the following is a characteristic of farmland?
Legal Restriction on Use
Which of the following is not a category under which cash flows may be classified
Lending
The party to which control over the right to use an asset is transferred via a lease agreement is known as the __________.
Lessee
Which party covers direct costs associated with operating an asset under an operating lease?
Lessee
In a leveraged lease agreement the lessee negotiates leasing terms with the ___________.
Lessor
In terms of a lease agreement the landlord would be known as the ___________.
Lessor
Manager Bob oversees the operation of a cotton ginning facility in South Texas. One of the gins is 30+ years old and needs to be phased out, this represents which of the following types of investment?
Maintenance and replacement of depreciable capital items
Which of the following is not another name for the internal rate-of-return?
Modified simple rate-of-return
The trading of debt securities with maturities less than 1 year is the
Money Market
Collecting relevant information is important in capital budgeting. Which of the following is least important?
Money in your retirement account
The trading of debt securities with maturities less than 1 year is the
Money market
When comparing two investments like a used squeeze chute and a new squeeze chute, this would be referred to as:
Mutually exclusive investment
Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over five years with no down payment. Calculate the monthly interest rates (yield) if the monthly payments are $350.00
NOT 1.03%
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%.
NOT $1,1081.36
When you retire, you want to have a two million dollars saved. If you plan to retire in 45 years, and you can receive 3% interest annually on a savings account, what is the fixed amount you have to save each year?
NOT $14,836
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?
NOT $19,917
Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of the month for the next 35 years? Assume that your savings account pays 8% compounded monthly.
NOT $20,277.13, NOT $81,579.14
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)?
NOT $207
Suppose that the firm CherryBlossom has an orchard they are willing to sell today. The net annual returns to the orchard are expected to be $50,000 per year for the next 20 years. At the end of 20 years, it is expected the land will sell for $30,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 16%.
NOT $236,478
The present value of an annuity of $5,000 to be received at the end of every six months for 6 years at a 4% annual rate would be (Pick the closest answer.):
NOT $27,259
Suppose that net returns are $700 per acre and expected rates of return are 15%, then the estimated land value per acre is:
NOT $3,371.67
Suppose that net returns are $700 per acre and expected rates of return are 15%, then the estimated land value per acre is:
NOT $3,966.67
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%.
NOT $392, NOT $249
A rancher is planning on purchasing additional raw land to expand his operation. Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 12 years. If the initial cost of an investment is $63,000. What is the annual depreciation expense for tax purposes?
NOT $5,200
How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded monthly?
NOT $5,407.18
Assume that the terminal value of an investment is $55,000. This purchase has a cost of $75,000 with a marginal tax rate of 20%. This investment has an annual depreciation of $2,500. What is the present value of the after-tax value after 10 years?
NOT $53,000
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?
NOT $570
A rancher is planning on purchasing addition raw land to expand her operation. Assume that the marginal tax rate is 11%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 10 years. If the initial cost of an investment is $67,000. What is the annual depreciation expense for tax purposes?
NOT $5850
A rancher is planning on purchasing additional raw land. Assume that the marginal tax rate is 15%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 10 years. If the initial cost of an investment is $42,000. What is the annual depreciation expense for tax purposes?
NOT $6,300
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).
NOT $7,049.75
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%
NOT $7193
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%?
NOT $802.50
Calculate 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.
NOT $81,579.14
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 yield on the bond is 11% and the price of the bond is $892.66.
NOT $892.66
Suppose that net returns are $300 per acre and expected rates of return are 3%, then the estimated land value per acre is:
NOT $9,991.00
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 interest rates (yield) if the monthly payments are $700.00.
NOT 1.65%
Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid quarterly. It matures in 10 years. Calculate the annual yield on the bond if the price of the bond is $845.87.
NOT 12.5%
Suppose you receive $3,000 a year in Years One through Four, $4,000 a year in Years Five through Nine, and $2,000 in Year 10, with all the money to be received at the end of the year. If your discount rate is 12%, what is the present value of these cash flows?
NOT 20,651.24, NOT 19,560.80
How many years would it take before you had $484,012 in your bank account if you deposited $40,000 today in a bank that pays 12% interest annually?
NOT 24
Calculate the after-tax discount rate if the before tax discount rate is 15% and the marginal tax rate is 25%
NOT 3.75%
What interest rate would a bank have to pay on a $25,000 deposit if you wanted to withdraw $56,305 from your bank account in 12 years? Assuming that interest is compounded yearly.
NOT 4%
Calculate the after-tax discount rate if the before tax discount rate is 20% and the marginal tax rate is 30%
NOT 6%
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 10 years. Calculate the annual yield on the bond if the price of the bond is $1,124.62.
NOT 6%, NOT 5%
Which of the following is an advantage of custom hiring?
NOT Greater balance sheet strength
Rental charges under the terms of a capital lease include.
NOT Lessor's cost of ownership
A capital lease is comparable to a ________________________.
NOT Long-term rental agreement
Which of the following is not an advantage of custom hiring?
NOT No costly maintenance
Leveraged leasing is frequently used in what type of agricultural organization?
NOT all of the above
Sensitivity analysis is conducted by:
NOT assigning either the best or the worst possible value to every variable and comparing the results to those achieved by the base case.
Loans used to provide the difference in capital provided by the lessee and the purchase price are secured using which of the following financial instruments?
NOT both a. and b.
Investment Analysis is a procedure for evaluating the effects of investment choices on a business's profitability, ____, and liquidity.
NOT liability
The investment decision process includes
NOT maintenance
The types of lease arrangements that can be made through the land are
NOT share lease
A/an ___________ is (generally) a security that promises a fixed periodic payment.
NOT treasury bill, NOT stock
Given the following information: The rate of return on assets (Ra): .20 The cost of debt (i): .07 The standard Deviation of Ra (σ): .11 The Tax Rate (t): .35 Calculate the risk as defined by the standard deviation of the rate of return to equity if leverage is 2.5.
NOT: .34125
Financial Capital is the debt and _____ claims making up the liabilities side of the firm's balance sheet
NOT: capital
The internal rate-of-return is found by setting the ___________________ equal to 0.
NPV
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
Collecting relevant information is important in capital budgeting. Which of the following is least important?
Name of your Bank
Collecting relevant information is important in capital budgeting. Which of the following is least important?
Name of your bank
The life cycle effect uses information about past, present, and expected business performance comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions
Natural habitats
The preferred technique for evaluating most capital investments is
Net Present Value
Given all the choices below, which is not a primary source of business risk of agricultural firms?
Real estate price fluctuation
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
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
_______ is a technique that indicates how much NPV will change in response to a given change in an input variable, other things held constant.
Sensitivity analysis
________ is a technique that indicated how much NPV will change in response to a given change in an input variable, other things held constant.
Sensitivity analysis
_______________ is a technique that indicates how much NPV will change in response to a given change in an input variable, other things held constant.
Sensitivity analysis
In estimating "after-tax incremental operating cash flows" for a project, you should include all of the following EXCEPT
Sunk costs
"Income Generating," "Cost Reduction," and "Maintenance and Replacement" are categories of alternative investments.
T
A good decision criterion to use when comparing investments is the annuity equivalent.
T
A partial budget helps farm owners/managers evaluate the financial effect of incremental changes.
T
Accounting tools consist of the balance sheet, income statement, and cash flow statement.
T
Net revenue is equal to operating revenue minus operating expense.
True
Although local businesspersons, such as lenders, real estate agents, professional managers, extension personnel, lawyers, and farmers, may have good, timely impressions of the land market, but their information is largely based on opinions, observations, and judgments.
T
An efficient information system aids in financial control, risk management, the meeting of legal requirements and financial planning.
T
An income statement and a cash flow budget can be used to measure the flow effects of the firm's financial performance over each period of time.
T
An income statement is a financial statement that reports a company's financial performance over a specific accounting period.
T
An options contract is a contingent claim. It gives holders the right to buy or sell something at a specific price during a period of time.
T
Annual Depreciation (D) is multiplied by the marginal tax rate to get the tax savings from depreciation.
T
Assuming that an annual interest rate is 4%, an investor would be indifferent between $1,000 today and $3,243 in 30 years from today. Holding everything else constant.
T
Assuming that an annual interest rate is 7%, an investor would be indifferent between $750 today and $4,071 in 25 years from today.
T
Assuming that an annual interest rate is 9%, an investor would be indifferent between $750 today and $6,467 in 25 years from today. Holding everything else constant.
T
Because of its durability and immobility, land has special treatment in institutional arrangements such as taxation, leasing, and government programs.
T
Being taxed on capital gains that predominately come from inflationary increases and not because of real changes in wealth is called the inflationary tax.
T
Bonds promise a fixed period payment and returns principal at maturity.
T
Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.
T
Budgeting Methods are used to evaluate the future directions of a firm.
T
Certainty-equivalent is defined by the certain amount of cash return that gives the same utility as a risky amount of cash return.
T
Compounding implies that interest is added to principal and interest is paid on earned interest thereafter.
T
Constant -growth series indicates the payment series experience a constant rate of growth.
T
Cost of equity is the rate of return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.
T
Efficient markets mean that stock prices have adjusted for all information available and there are no sure bargains.
T
External form of capital rationing involves restricted access to Equity and Debt capital.
T
Farm real estate leases may be short or long-term, and they may differ substantially in their rental arrangements.
T
Financial Management evaluates the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, cash flow budgets, and capital budgets.
T
Financial management involves the acquisition and use of financial resources and the protection of equity capital from all kinds of risk.
T
Financing refers to the means of acquiring control of assets: ownership by cash purchase or borrowing or leasing.
T
For mutually exclusive investments or if there is capital rationing, investments should be compared.
T
Identification of investment opportunities is a crucial function of management.
T
If a loan is fully amortized it will have an equal periodic payment including principal and interest.
T
If it is known in advance, that investments are acceptable, then the annuity equivalent may be negative for acceptable investments.
T
If the before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 8.64%.
T
If the net present value is negative then you have made an unacceptable investment.
T
If you have already purchased bonds, you want interest rates (market rates) on bonds to decrease, holding everything else constant.
T
In an efficient market, prices are adjusted for information.
T
In compound interest, at the end of the transaction period, the total principal amount is called the compound amount.
T
In financial management, the emphasis is on the cash flow budgets and the capital budgets.
T
In general, greater expected profits require greater risk when making financial decisions.
T
In practice, the maximum bid price would be found by varying the asking price in the present value model until the net present value converged to zero.
T
In terms of accountability for taxes and financial feasibility, nominal cash flows are more accurate than real cash flows.
T
Interest can be deducted from taxable income.
T
Net Cash Flow is the stream of cash that the owner can withdraw for consumption or reinvestment elsewhere, which includes all cash flows relating to an enterprise and all cash outflows for operating expenses, capital expenditures, and income taxes.
T
What is not a reason liquidity problems may arise from acquiring farm land?
The terminal land value typically increases as the asset ages
"Pro forma" refers to setting up accounting information in advance
True
"Pro forma" refers to setting up accounting information in advance.
True
A cash flow budget is a chronological overview of expected cash income and expenses over a given period of time
True
A firm can decrease leverage and get crop insurance to reduce risks.
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
Accounting tools consist of the balance sheet, income statement, and cash flow statement.
True
An income statement is a financial statement that reports a company's financial performance over a specific accounting period.
True
Annual Depreciation (D) is multiplied by the marginal tax rate to get the tax savings from depreciation.
True
As government programs are put in place to reduce business risk optimal leverage will increase; which will allow farms to borrow more money.
True
Assets are financed using debt and equity.
True
Bonds promise a field period payment and returns principal at maturity.
True
Bonds promise a fixed 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 methods used to evaluate the future directions of a firm
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
Businesses are net Suppliers of securities
True
Cash flows stated in nominal dollars over time can be converted to real dollars.
True
Cash flows stated in real dollars over time can be converted to nominal dollars
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
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
Choice of discount rate is an individual decision.
True
Companies offering operating leases are usually those that perform maintenance tasks, such as manufacturers or their subsidiaries, dealers, or other specialized businesses.
True
Compounding converts a present amount into an equivalent future amount.
True
Costs of capital are the costs a firm incurs for its financial capital. Financial capital, in turn, refers to the debt and equity claims making up the liabilities side of the firm's balance sheet.
True
Crop-share lease is a kind of land lease, where a specified percentage of the crop is paid to the land owner for use of the land. Ordinarily, tenant proved all labor and machinery, the land owner provides the real estate, and both parties share most of the variable cost of production.
True
Deflation is the decrease in the general price level.
True
Discounting convert a future amount into an equivalents present amount?
True
Discounting converts a future amount into an equivalent present amount
True
Equity costs increase as debt increases because of greater financial risk associated with higher financial leverage.
True
Farm land is considered as a non-depreciable asset
True
If retained earnings are insufficient to meet investment needs, especially when earnings and investment opportunities are unpredictable, the firm first draws down its holdings of cash and financial assets and then turns to external sources of funds.
True
If the before tax discount rate is 12% and the marginal tax rate is 28%, the after tax discount rate should be 8.64%.
True
If the net present value is negative then you have made an unacceptable investment
True
If the net present value is negative then you have made an unacceptable investment.
True
If the net present value is positive then you have made an acceptable investment.
True
If there are restraints on equity capital but no restraint on debt capital the discount rate must be at least as high as the borrowing rate.
True
If you have already purchased bonds, you want interest rates (market rates) on bonds to decrease, holding everything else constant.
True
In general if the lessee acquire all the economic benefits and risks of owning the leased asset, then the value of the leased asset is shown as an asset and the rental obligation is shown as a debt.
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 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
Increasing a firm's assets can increase profitability.
True
Inflation is an increase in the general level of prices for all goods and service in an economy
True
Inflation is the increase in general price level.
True
Inflation is the increase in the general price level
True
Inflation is the increase in the general price level.
True
Interest on a business loan is tax deductible
True
Interest on a business loan is tax deductible.
True
Interest payments on a fully amortized loan decline over the life of the loan.
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
It is important to determine the acquisition cost of depreciable assets because it represents the cost basis for annual depreciation charges.
True
It is leverage that has an impact on returns and risk relative to the profit margin, business risk and taxes.
True
Land is a durable, immobile resource.
True
Land is a durable, immobile resource. With proper maintenance, land's basic properties do not change over time, or if they do change, they change so slowly that land is considered to have an infinite life.
True
Land is an asset that does not depreciate
True
Leasing is a method of financing the control of an asset that separates its use from its ownership.
True
Leverage is debt relative to equity used to finance assets.
True
Leverage is found by dividing debt by equity.
True
Leverage will increase profitability as long as rate of return on assets is greater than the cost of debt.
True
Life Insurance Companies make loans to farmers
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
Mutual funds are a pool of funds from investors. These funds are invested in a portfolio of securities.
True
Net Cash Flow is the stream of cash that the owner can withdraw for consumption or reinvestment elsewhere, which includes all cash flows relating to an enterprise and all cash outflows for operating expenses, capital expenditures, and income taxes.
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
Net Revenue is equal to operating revenue minus operating expense.
True
Net cash flow is the stream of cash that the owner can withdraw for consumption or reinvestment elsewhere, which includes all cash flows relating to an enterprise and all cash outflows for operating expenses, capital expenditures, and income taxes.
True
Sensitivity analysis provides information on:
Whether the NPV should be trusted and may provide a false sense of security if all NPVs are positive The need for additional information as it tests each variable in isolation
Which of the following accurately expresses the calculation for simple rate-of-return?
Y/I
Suppose you can buy a mechanical post hole digger for $500. It is projected that the digger will save you $150 a year over the next four years (end of year). If your required rate of return is 6%, should you buy the digger?
Yes, since NPV = $19.77 > 0.
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 you can 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 you required rate of return is 7.5%, should you buy the tractor?
Yes, since NPV=$22.94>0
_______________ is a technique that indicates how much NPV will change in response to a given change in an input variable, other things held constant.
sensitivity analysis
Land has ____________ legal description, with ownership recorded by local governments for taxation and other controls.
specialized
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
Mr. Agirich has the opportunity to purchase some farm land at $3,000/acre. He expects that real land prices will increase at 5% per year and inflation will be 2%. His pretax risk adjusted discount rate is 16%. Assume that the land will be sold in 20 years and the marginal tax rate is 23%. The effective interest rate on land loans is 3%. (i) Calculate the after-tax risk adjusted discount rate. a. 12.3% b. 10.7% c. 3% d. 2.3% e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the real price of land in 20 years. a. $4,458 b. $5,418 c. $7,960 d. $30,529 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the nominal price of land in 20 years. a. $6,624 b. $45,364 c. $8,051 d. $11,828 e. None of the answers are correct Enter Response Here: [iii] (iv) Calculate the after-tax terminal value of the land. a. $11,828 b. $9,798 c. $7,960 d. $3,000 e. None of the answers are correct Enter Response Here: [iv] (v) Calculate the Present Value of the after-tax terminal value. a. $1,162 b. $782 c. $963 d. $294 e. None of the answers are correct Enter Response Here: [v] (vi) What is the approximate maximum bid price for this land? a. $4,162 b. $3,294 c. $3,782 d. $3,963 e. None of the answers are correct
a c d b c d
Mr. Agirich has the opportunity to purchase some farm land at $3,000/acre. He expects that real land prices will increase at 5% per year and inflation will be 2%. His pretax risk adjusted discount rate is 16%. Assume that the land will be sold in 20 years and the marginal tax rate is 23%. The effective interest rate on land loans is 3%. (i) Calculate the after-tax risk adjusted discount rate. a. 12.3% b. 10.7% c. 3% d. 2.3% e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the real price of land in 20 years. a. $4,458 b. $5,418 c. $7,960 d. $30,529 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the nominal price of land in 20 years. a. $6,624 b. $45,364 c. $8,051 d. $11,828 e. None of the answers are correct Enter Response Here: [iii] (iv) Calculate the after-tax terminal value of the land. a. $11,828 b. $9,798 c. $7,960 d. $3,000 e. None of the answers are correct Enter Response Here: [iv] (v) Calculate the Present Value of the after-tax terminal value. a. $1,162 b. $782 c. $963 d. $294 e. None of the answers are correct Enter Response Here: [v] (vi) What is the approximate maximum bid price for this land? a. $4,162 b. $3,294 c. $3,782 d. $3,963 e. None of the answers are correct Enter Response Here: [vi]
a c d b c d
Suppose a rancher wants to borrow $163,835.00 to buy a tract of land. The BCS bank will make a 26-year loan fully amortized at 10.84% (annual payments). A $476.00 loan fee and stock purchase is required. The borrower stock requirement is the lesser of $1,000 or 4.00% of loan amount. (i) Calculate the loan principal. a. $171,157.29 b. $165,337.10 c. $165,311.00 d. $170,791.04 Enter Response Here: [i] (ii) Calculate the required stock purchase. a. $6,598.10 b. $1,596.76 c. $6,612.44 d. $1,000.00 Enter Response Here: [ii] (iii) Calculate the annual loan payments. a. $19,251.61 b. $19,932.45 c. $19,254.65 d. $19,889.80 Enter Response Here: [iii]
c d a
A farmer is planning on investing in land with real net returns of $29.44 per acre and assuming these real returns will increase by 2.21% each year. The marginal tax rate is 15.63% and the inflation rate is 4.54%. This farmer is going to sell this piece of land in 3 years. (i) Calculate the real net return at the end of year 2. a. $30.76 b. $39.37 c. $33.55 d. $32.18 e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the nominal net return at the end of year 3. a. $35.91 b. $37.73 c. $32.15 d. $32.83 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the after-tax nominal net return at the end of year 3. a. $35.91 b. $35.04 c. $30.30 d. $30.97 e. None of the answers are correct
a c e *** partially wrong
The investment decision process includes
all of the above: (Identify Alternative Investments, Collect Relevant Information, Layout Cash Flows, Analysis)
The land value is influenced by special factors such as
all of the above: (excell machinery capacity, environmental concerns)
A farmer has the opportunity to purchase an advanced guidance system for precision farming. This is the advertisement: New Outback MAX Guidance System Outback MAX™ with Outback ConnX™ — introducing the next generation Outback Guidance® system that redefines simplicity in precision farming. The farmer believes that the guidance system that can be purchased for $5,500 will improve corn production by 220 bushels per year. He plans to keep the Guidance system for 8 years. At the end of 8years he believes he can sell it for $1,000. The farm's accountant has done some preliminary work. The marginal tax rate is 25%, the pre-tax risk adjusted discount rate is 8% and inflation is assumed to be zero. The account calculates the present value of the tax savings from depreciation to be $1,067.31, and the present value of the after-tax terminal value to be $470.56. The price of corn is expected to be $4.30/bushel over the 8 years. (i) Calculate the additional after-tax net returns from corn production if the farmer purchases the guidance system. A. $900 B. $709 C. $270 D. $750 E. None of these answers Enter Response Here: [i] (ii) Calculate the after-tax risk adjusted discount rate. A. 6.0% B. 12% C. 3.6% D. 1.25% E. None of these answers Enter Response Here: [ii] (iii) Calculate the present value of the additional after-tax net returns from corn production if the farmer purchases the guidance system. A. $5,932 B. $1,779 *C. $4,406 D. $2,963 E. None of these answers Enter Response Here: [iii] (iv) Calculate the NPV of the guidance system. A. $156 B. $1100 C. $445 D. $444 E. None of these answers Enter Response Here: [iv] (v) Calculate the break-even improvement in corn production (yield) if the farmer purchases the guidance system. A. $150 B. $198 C. $140 D. $170 E. None of these answers Enter Response Here: [v]
b a c d b
A farmer is considering the option to lease a new module builder. Inflation is assumed to be zero. Assume that the lease payment is constant through the lease agreement. Assume that the lease payments would be made at the beginning of the year and the lease ends at the end of the 12th year. This lessor will pay for repairs and maintenance. The operating expenses for this tractor will be $3,500 with a marginal tax rate of 20% and an after tax discount rate of 7%. (i) Calculate the net present value of the lease investment. a. -$20,996 b. -$23,796 c. -$2,800 d. None of the answers are correct Enter Response Here:[i] (ii) Calculate the annuity equivalent of this lease arrangement. a. -$3,793 b. -$2,800 c. -$2,995 d. None of the answers are correct Enter Response Here:[ii]
b c
Suppose you invest $100 today, your return for the year is $10, and your tax rate is 20%. (i) What is your before tax rate of return? a. 8% b. 10% c. 20% d. None of the answers are correct. Enter Response Here [a] (ii) How much money did you earn after taxes? a. $10 b. $2 c. $8 d. None of the answers are correct. Enter Response Here [b] (iii) What is your after-tax rate of return? a. 8% b. 2% c. 10% d. None of the answers are correct. Enter Response Here [c] (iv) If your before tax rate of return was 10% and your marginal tax rate was 20%, calculate the after-tax rate of return. a. 8% b. 2% c. 10% d. None of the answers are correct. Enter Response Here [d]
b c a a
Which is not considered as depreciable assets?
crops
A farmer has recently bought a land for $2,000.00 and planned on selling the land in 8 years. The real price of land is expected to increase at 2% each year. Suppose that the inflation rate is 14% and the marginal tax rate is 11%. (i) Calculate the real land price. a. $1,526.11 b. $2,034.81 c. $2,484.87 d. $2,343.32 e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the before-tax nominal terminal value. a. $2,343.32 b. $6,684.52 c. $2,015.25 d. $2,085.55 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the after-tax-nominal terminal value. a. $6,169.22 b. $1,828.02 c. $5,490.61 d. $5,949.22 e. None of the answers are correct
d b a
The net present value method uses the ____________ formulas for a non-uniform or a uniform series of payments to value the projected cash flows for each investment alternative at one point in time.
discounting
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 values.
discounting, compounding
A farmer has the opportunity to purchase an advanced guidance system for precision farming. This is the advertisement: New Outback MAX Guidance System Outback MAX™ with Outback ConnX™ — introducing the next generation Outback Guidance® system that redefines simplicity in precision farming. Outback MAX leads the way with simplicity in design and operation, a powerful mapping engine, excellent screen clarity, seamless connectivity, and a rugged design that can operate in rough environments—features that are critical to achieving the benefits of precision farming. What makes MAX the smart choice for you and your business? • Compatible with eDriveX™ with eTurns™ - taking advantage of the most precise and feature rich automated steering available. • Has excellent screen clarity and rugged design that can operate in rough environments • Provides a powerful mapping engine that stacks imagery and data layers • Delivers seamless connectivity via the Outback ConnX data management system to deliver real-time data access and management. The farmer believes that the guidance system will add the value of improved farming, more uniform treatments, less driver skill needed and extended hours of operation. He believes improved yields and reduction in operating costs will increase his profits by $1,000 per year. He plans to keep the Guidance system for 10 years. At the end of 10 years he believes he can sell it for $500. Calculate the market value of this investment if the market rate of return on comparable investments is 12% a.$5,650 b. $5,811 c. $17, 549 d. $18,049 e. None of the above ENTER RESPONSE HERE: [a] ii. Calculate the Net Present Value if the price of this investment is $4,799 and the farmer's required rate of return is 12% (discount rate) and state if this investment is acceptable. -$1,012; Unacceptable $5,701; Acceptable $1,012; Acceptable $5,811; Acceptable None of the above ENTER RESPONSE HERE: [b] iii. Calculate the yield on this investment if the price of this investment is $4,799 and state if this investment is acceptable if the required rate of return is 12%. 16.7%; Acceptable 16.2%; Acceptable 20.8%; Acceptable 12%; Acceptable None of the above ENTER RESPONSE HERE: [c] iv. After the farmer has used this Guidance system for 10 years, he discovers that the increase in profits was only $900 and the 10 year old guidance system was antiquated and he couldn't sell it. Given he paid $4799 for the guidance system, what was the true yield? 16.7% 14.1% 12.0% 13.4% None of the above ENTER RESPONSE HERE: [d]
b c a d
A farmer has the opportunity to purchase an advanced guidance system for precision farming. This is the advertisement: New Outback MAX Guidance System Outback MAX™ with Outback ConnX™ — introducing the next generation Outback Guidance® system that redefines simplicity in precision farming. Outback MAX leads the way with simplicity in design and operation, a powerful mapping engine, excellent screen clarity, seamless connectivity, and a rugged design that can operate in rough environments—features that are critical to achieving the benefits of precision farming. What makes MAX the smart choice for you and your business? • Compatible with eDriveX™ with eTurns™ - taking advantage of the most precise and feature rich automated steering available. • Has excellent screen clarity and rugged design that can operate in rough environments • Provides a powerful mapping engine that stacks imagery and data layers • Delivers seamless connectivity via the Outback ConnX data management system to deliver real-time data access and management. The farmer believes that the guidance system will add the value of improved farming, more uniform treatments, less driver skill needed and extended hours of operation. He believes improved yields and reduction in operating costs will increase his profits by $950 per year. He plans to keep the Guidance system for 12 years. At the end of 12 years he believes he can sell it for $400. (i) Calculate the market value of this investment if the market rate of return on comparable investments is 9% a.$5,206 b. $6,945 c. $15,146 d. $3,202 e. None of the above ENTER RESPONSE HERE: [a] (ii) Calculate the Net Present Value if the price of this investment is $5,250 and the farmer's required rate of return is 9% (discount rate) and state if this investment is acceptable. a. -$44; Unacceptable b. $9,896; Acceptable c. $1,695; Acceptable d. -$2,048; Acceptable e. None of the above ENTER RESPONSE HERE: [b] (iii) Calculate the yield on this investment if the price of this investment is $5,250 and state if this investment is acceptable if the required rate of return is 9%. a. 14.9%; Acceptable b. 11.79%; Acceptable c. 14.9%; Unacceptable d. 8.20%; Unacceptable e. None of the above ENTER RESPONSE HERE: [c] (iv) After the farmer has used this Guidance system for 12 years, he discovers that the increase in profits was only $900 and the 12 year old guidance system was antiquated and he couldn't sell it. Given he paid $5,250 for the guidance system, what was the true yield? a. 14.9% b. 14.5% c. 12.0% d. 13.3% e. None of the above ENTER RESPONSE HERE: [d]
b c a d
Given the following information: Loan amount: $561.48 Contractual Rate: 14.87% Conversion Periods: 1 Life of Loan (years): 2 Method of Payment: Equal Prin. Fee: no Stock Requirements: no (i) Calculate the total loan payment in year 1. a. $345.08 b. $364.23 c. $364.90 d. $344.80 Enter Response Here: [i] (ii) Calculate the total loan payment in year 2. a. $344.85 b. $322.93 c. $322.49 d. $344.80 Enter Response Here: [ii] (iii) Calculate the actuarial rate. a. 14.87% b. 14.87% c. 15.55% d. 14.65% Enter Response Here: [iii]
b c b
Mr. Agirich has the opportunity to purchase some farm land at $3,000/acre. He expects that real land prices will increase at 5% per year and inflation will be 2%. His pretax risk adjusted discount rate is 14%. Assume that the land will be sold in 10 years and the marginal tax rate is 23%. The effective interest rate on land loans is 6%. (i) Calculate the after-tax risk adjusted discount rate. a. 14% b. 10.7% c. 6% d. 4.6% e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the real price of land in 10 years. a. $3,657 b. $8,291 c. $4,887 d. $5,373 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the nominal price of land in 10 years. a. $4,458 b. $6,550 c. $10,019 d. $5,957 e. None of the answers are correct Enter Response Here: [iii] (iv) Calculate the after-tax terminal value of the land. a. $5,957 b. $5,277 c. $4,887 d. $3,000 e. None of the answers are correct Enter Response Here: [iv] (v) Calculate the Present Value of the after-tax terminal value. a. $2,140 b. $1,756 c. $1,896 d. $1,077 e. None of the answers are correct Enter Response Here: [v] (vi) What is the approximate maximum bid price for this land? a. $5,140 b. $4,756 c. $4,077 d. $4,896 e. None of the answers are correct
b c d b e e *** partially wrong
If it is given that the loan amount is $470, the percent stock requirement is .13, and the credit fee is $11.04. (i) Calculate the loan principal. a. $553.34 b. $552.92 c. $553.14 d. $553.54 Enter Response Here: [i] (ii) Calculate the required stock purchase. a. $70.98 b. $72.64 c. $72.64 d. $71.88 Enter Response Here: [ii]
b d
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $95,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 25%. (i) What is the loan balance at the end of 1st year? a. $73,934.68 b. $73,885.14 c. $66,846.85 d. None of the answers are correct ENTER RESPONSE HERE: [i] (ii) What is the loan balance at the end of 2nd year? a. $48,646.40 b. $35,315.32 c. $50,236.49 d. None of the answers are correct ENTER RESPONSE HERE: [ii]
c b
Loan Amount: A-670800... B-679800 Contractual Rate: A-8.59%... B-8.55% Conversion Periods: A-12...B-12 ...That should be enough (i) Calculate the amount of loan payments of Bank A. a. $5,064.33 b. $5,153.01 c. $5,060.55 d. $5,017.80 e. None of the answers are correct Enter Response Here: [i] (ii) Calculate the amount of loan payments of Bank B. a. $5,125.27 b. $5,085.65 c. $5,088.12 d. $5,027.66 e. None of the answers are correct Enter Response Here: [ii] (iii) Calculate the actuarial rate of Bank B. a. 1.6377% b. 1.4388% c. 0.5980% d. 0.7246% e. None of the answers are correct Enter Response Here: [iii] (iv) Calculate the APR of Bank A. a. 8.6456% b. 9.3489% c. 8.0429% d. 9.2732% e. None of the answers are correct Enter Response Here: [iv] (v) Calculate the APR of Bank B. a. 7.9570% b. 9.2086% c. 9.4942% d. 8.6957% e. None of the answers are correct Enter Response Here: [v] (vi) Which bank would you choose? a. A b. B Enter Response Here: [vi]
c b d a d a
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 enter response here:[ii]
c d
A farmer is thinking about investing in a center pivot irrigation system to irrigate 100 acres of land in Fresno. With an irrigation system, operating expenses would increase by $175 per acre due to electricity, maintenance and additional labor. It is estimated that the irrigation will increase yields and thus operating receipts by $300 per acre. The cost for drilling a well would be $10,200 and the cost for the center pivot irrigation system would be $42,000. The irrigation system would be ¼ mile long and would irrigate 100 acres. Suppose that the farmer wants to evaluate this investment over a five-year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $20,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 20%. The IRS will allow the farmer to depreciate the investment using straight line over 15 years. Assume that the terminal value of this investment is $20,000 at the end of five years. The farmer requires a 11% return to capital (pretax) (i) Calculate the Initial Cost a. $31,000 b. $42,000 c. $39,200 d. $52,200 Enter your response here [a] (ii) Calculate the after tax- net returns a. $12,500 b. $10,000 c. $24,000 d. $14,000 Enter your response here[b] (iii) Calculate the tax savings from depreciation a. $696 b. $52,000 c. $3,480 d. $382 Enter your response here[c] (iv) Calculate the after-tax terminal value a. $20,000 b. $16,000 c. $4,000 d. $30,744 Enter your response here[d] (v) Which discount rate should be used for calculating the NPV of this investment? a. 8.8% b. 11% c. 11.6% d. 20%
i) 52,200 ii)10,000 iii)696 iv)30,744 v)8.8%
Robert is considering the purchase of 80 acres of land South Texas for $3,256.38 per acre. A bank will loan him $3,030.00 per acre of land and the loan will be fully amortized over 12 years at 9%. The outstanding balance of loan will be paid at the end of the fifth year. Assume that the marginal tax rate is 14% and the inflation rate is 3%. (i) Calculate the loan payment. a. $423 b. $578 c. $272 d. None of the answers are correct (ii) Calculate the interest paid in the second year. a. $259 b. $244 c. $272 d. None of the answers are correct (iii) Calculate the tax savings from interest payments in the first year. a. $36 b. $38.18 c. $34 d. None of the answers are correct (iv) Calculate the loan balance at the end of the second year. a. $2,879 b. $2,536.84 c. $2,715 d. None of the answers are correct
i) A ii) A iii) B iv) C
A rancher is considering the purchase of additional land to expand operations. He can operate an additional 250 acres with present labor and machinery. The land is selling for $550 per acre. This rancher believes that the operating revenue per acre of land will be $450 and operating expenses will be $400 in present dollars. He expects the inflation rate will be 4%. The rancher will sell the land in 3 years and he anticipates that land prices will increase at the rate of inflation from the base of $550 per acre. A bank will loan him $400 per acre of land and the loan will be fully amortized over 15 years at 12% (annual payments). The outstanding balance of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 15% and that he requires at least a 8% pre-tax, risk-free return on capital and a 2% risk premium on projects of comparable risk. (i) Calculate the nominal after-tax net returns at the end of year 2. a. $45.97 b. $51.69 c. $54.73 d. None of the answers are correct (ii) What is the present value of the nominal after tax net return after 3 years? a. $123.68 b. $ 135.92 c. $117.21 d. None of the answers are correct (iii) What is present value of the after-tax terminal value after 3 years? a. $489.29 b. $476.30 c. $583.27 d. None of the answers are correct (iv) What is the net present value? a. $58.39 b. $39.26 c. $43.51 d. None of the answers are correct
i) A ii) C iii) B iv) C
A farmer is thinking about investing in a center pivot irrigation system to irrigate 80 acres of land in Fresno. With an irrigation system, operating expenses would increase by $75 per acre due to electricity, maintenance and additional labor. It is estimated that the irrigation will increase yields and thus operating receipts by $150 per acre. The cost for drilling a well would be $8,200 and the cost for the center pivot irrigation system would be $31,000. The irrigation system would be ¼ mile long and would irrigate 80 acres. Suppose that the farmer wants to evaluate this investment over a five-year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $31,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 15%. The IRS will allow the farmer to depreciate the investment using straight line over 15 years. Assume that the terminal value of this investment is $31,000 at the end of five years. The farmer requires a 10% return to capital (pretax). (i) Calculate the Initial Cost a. $39,200 b. $22,800 c. $31,000 d. $8,200 Enter your response here[a] (ii) Calculate the after-tax net returns a. $10,200 b. $12,000 c. $5,100 d. $75 Enter your response here[b] (iii) Calculate the tax savings from depreciation a. $310 b. $392 c. $2,221 d. $2,613 Enter your response here[c] (iv) Calculate the after-tax terminal value a. $29,450 b. $33,320 c. $26,350 d. $30,270 Enter your response here[d] (v) Suppose that the discount rate is 8.5%. Using information from your answers above, what is the NPV for the investment? a.$1,835.39 b.$4,680.59 c.$2,572.93 d.$4,104.83 Enter your response here[e]
i) A 39,200 ii) C 5,100 iii) B 392 iv) D 30,270 v) C 2,572.93
Suppose a farmer requires a pre-tax rate of return of 12%, has a marginal tax rate of 20%, assigns a 3% risk premium to his new investments, and expects inflation to be 4% per year over the next 12 years. This farmer calculates the NPV of his new investment to be -$35,000 based on an investment life of 12 years. (i) Calculate the real discount rate. a. 12% b. 7.69% c. 11.45% d. None of the answers are correct (ii) Calculate the real annuity equivalent. a. $4,570 b. $6,719 c. $7,972 d. None of the answers are correct
i) B ii) A
A farmer plans on selling the land in 5 years. He thinks the real land value will be $400 in 5 years. Suppose that the marginal tax rate is 12% and the inflation rate is 7%. (i)Calculate the nominal terminal value. a.$493.70 b.$561.02 c.$448.00 d.$428.00 e. None of the answers are correct (ii)Calculate the after-tax terminal value. a.$424.64 b.$442.24 c.$541.70 d. $482.45 e. None of the answers are correct
i) B ii) C
Suppose a farmer is considering the purchase of additional farmland. It is believed that the operating revenue per acre of land per year will be $222 and operating expenses will be $186 in present dollars. The inflation rate is expected to be 4% Assume that the marginal tax rate is 19% and that this farmer requires at least an 8% pre-tax, risk free return on capital. (i)Calculate the nominal before-tax net returns at the end of year 1. a.$35.94 b.$44.55 c.$37.44 d.$36.00 e. None of the answers are correct (ii)Calculate the nominal after-tax net returns at the end of year 2. a.$30.28 b.$31.54 c.$37.53 d.$30.33 e. None of the answers are correct (iii) Calculate the nominal after-tax net returns at the end of year 3 a,$32.80 b.$31.49 c.$39.03 d.$31.54 e. None of the answers are correct
i) C ii) B iii) A
Jon is considering the purchase of 340 acres of land for $1527.18 per acre. A bank will loan him $1,290 per acre of land and the loan will be fully amortized over 20 years at 18%. The outstanding balance of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 20%. Suppose that the following information is given: Net Cash Flow before debt in Year 1= $162.00 Net Cash Flow before debt in Year 2= $177.00 Net Cash Flow before debt in Year 3= $1,522.00 (i) How much down payment is needed? a. $92,898 b. $64,512 c. $80,641 d. $76,125 e. None of the answers are correct (ii) Calculate the amount of loan payment per acre per period. a. $293 b. $241 c. $192 d. $197 e. None of the answers are correct (iii) Calculate the per acre tax savings from paying interest in year 2. a. $18 b. $21 c. $46 d.$20 e. None of the answers are correct (iv) How much money needs to be generated from other parts of the business to cover the cash deficit in the 1st year, so that the investment is financially feasible? a. $15,829 b. $19,787 c. $11,070 d.$23,744 e. None of the answers are correct (v) How much money needs to be generated from other parts of the business to cover the cash deficit in the 2nd year, so that the investment is financially feasible? a $12,457 b.$6,079 c. $15,571 d.$8,374 e. None of the answers are correct
i) C ii) B iii)C iv) A v) D *partially wrong*
A rancher is considering the purchase of additional land to expand operations. He can operate an additional 1000 acres with present labor and machinery. The land is selling for $750 per acre. This rancher believes that the operating revenue per acre of land will be $550 and operating expenses will be $450 in present dollars. He expects the inflation rate will be 3%. The rancher will sell the land in 3 years and he anticipates that land prices will increase at the rate of inflation from the base of $750 per acre. A bank will loan him $600 per acre of land and the loan will be fully amortized over 15 years at 12% (annual payments). The outstanding balance of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 15% and that he requires at least an 8% pre-tax, risk-free return on capital and a 2% risk premium on projects of comparable risk. (i) Calculate the nominal after-tax net returns at the end of year 2. a. $78.30 b. $84.52 c. $90.18 d. None of the answers are correct (ii) What is the present value of the nominal after tax net return after 3 years? a. $258.10 b. $213.27 c. $230.01 d. None of the answers are correct (iii) What is present value of the after-tax terminal value after 3 years? a. $612.38 b. $628.66 c. $633.46 d. None of the answers are correct (iv) What is the net present value? a. $134.89 b. $97.22 c. $113.47 d. None of the answers are correct
i) C ii) C iii) C iv) C
A farmer plans on selling the land in 9 years. He thinks the real land value will be $800 in 9 years. Suppose that the marginal tax rate is 29% and the inflation rate is 3%. (i)Calculate the nominal terminal value. a.$1,032.00 b.$741.11 c.$824.00 d.$1,043.82 e. None of the answers are correct (ii)Calculate the after-tax terminal value. a.$973.11 b.$758.19 c.$964.72 d.$817.04 e. None of the answers are correct
i) D ii) A
A farmer plans on selling the land in 8 years. He thinks the real land value will be $500 in 8 years. Suppose that the marginal tax rate is 38% and the inflation rate is 6%. (i)Calculate the nominal terminal value. a.$494.09 b.$530.00 c.$690.00 d.$796.92 e. None of the answers are correct (ii)Calculate the after-tax terminal value. a.$617.80 b.$684.09 c.$496.34 d.$518.60 e. None of the answers are correct
i) D ii) B
If it is given that the loan amount is $320, the percent stock requirement is .08, and the credit fee is 10.81. (i) Calculate the loan principal. a. $359.57 b. $361.23 c. $360.97 d. $360.34 (ii) Calculate the required stock purchase. a. $30.38 b. $28.77 c. $29.57 d. $28.21
i) a ii) b
Caleb is considering the purchase of 150 acres of land in West Texas for $3,500 per acre. A bank will loan him $2,500 per acre of land and the loan will be fully amortized over 10 years at 8%. The outstanding balance of the loan will be paid at the end of the 5th year. Assume that the marginal tax rate is 10% and the inflation rate is 3%. (i) Calculate the loan payment. a. $372 b. $172 c. $200 d. None of the answers are correct (ii) Calculate the interest paid in the first year. a. $186 b. $172 c. $200 d. None of the answers are correct (iii) Calculate the tax savings from interest payments in the second year. a. $20 b. $18 c. $17 d. None of the answers are correct (iv) Calculate the loan balance at the end of the second year. a. $2,327 b. $2,500 c. $2,141 d. None of the answers are correct
i) a ii) c iii) b iv)c
A farmer is considering the option to lease a new module builder. Inflation is assumed to be zero. Assume that the lease payment is constant through the lease agreement. Assume that the lease payments would be made at the beginning of the year and the lease ends at the end of the 12th year. This lessor will pay for repairs and maintenance. The operating expenses for this tractor will be $3,500 with a marginal tax rate of 20% and an after tax discount rate of 7%. (i) Calculate the net present value of the lease investment. a. -$20,996 b. -$23,796 c. -$2,800 d. None of the answers are correct (ii) Calculate the annuity equivalent of this lease arrangement. a. -$3,793 b. -$2,800 c. -$2,995 d. None of the answers are correct
i) b ii) c
Scott is considering the purchase of 400 acres of land for $1,627.37 per acre. A bank will loan him $1,410 per acre of land and the loan will be fully amortized over 20 years at 19%. The outstanding balance of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 22%. Suppose that the following information is given: Net Cash Flow before debt in Year 1= $173.00 Net Cash Flow before debt in Year 2= $198.00 Net Cash Flow before debt in Year 3= $1,715.00 i) How much down payment is needed? a. $67,819 b. $86,948 c. $100,942 d. $80,705 e. None of the answers are correct (ii) Calculate the amount of loan payment per acre per period. a. $223 b. $341 c. $215 d. $276 e. None of the answers are correct (iii) Calculate the per acre tax savings from paying interest in Year 2. a. $29 b. $27 c. $58 d. $24 e. None of the answers are correct (iv) How much money needs to be generated from other parts of the business to cover the cash deficit in the 1st year, so that the investment is financially feasible? a. $16,780 b. $17,792 c. $21,513 d. $25,601 e. None of the answers are correct (v) How much money needs to be generated from other parts of the business to cover the cash deficit in the 2nd year, so that he investment is financially feasible? a. $5,691 b. $7,301 c. $6,947 d. $7,936 e. None of the answers are correct
i) b ii) d iii) c iv) b v) d
To ascertain wether 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
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
Loan amount..............$1155.15 Contract. rate..............15.66% Conversion per...........1 Life of loan...................2 meth. of pmt................equal princ fee.....................................no stock req........................no (i)Calculate the total loan payment in year 1. a. $717.25 b.$759.02 c.$758.47 d.$716.53 (ii)Calculate the total loan payment in year 2. a.$668.99 b.$668.02 c.$716.53 d.$716.58 (iii)Calculate the actuarial rate. a.15.20% b.15.74% c.15.73% d.15.66%
i) c ii) b iii) d
A farmer has recently bought a land for $2,000.00 and planned on selling the land in 8 years. The real price of land is expected to increase at 2% each year. Suppose that the inflation rate is 14% and the marginal tax rate is 11%. (i) Calculate the real land price. a. $1,526.11 b. $2,034.81 c. $2,484.87 d. $2,343.32 e. None of the answers are correct (ii) Calculate the before-tax nominal terminal value. a. $2,343.32 b. $6,684.52 c. $2,015.25 d. $2,085.55 e. None of the answers are correct (iii) Calculate the after-tax-nominal terminal value. a. $6,169.22 b. $1,828.02 c. $5,490.61 d. $5,949.22 e. None of the answers are correct
i) d ii) b iii) a
Mr. Agirich has the opportunity to purchase some farm land at $2,000/acre. He expects that real land prices will increase at 4% per year and inflation will be 3%. His pretax risk adjusted discount rate is 14%. Assume that the land will be sold in 10 years and the marginal tax rate is 23%. The effective interest rate on land loans is 5%. (i) Calculate the after-tax risk adjusted discount rate. a. 14% b. 10.7% c. 6% d. 4.6% e. None of the answers are correct (ii) Calculate the real price of land in 10 years. a. $2,688 b. $3,258 c. $2,960 d. $7,414 e. None of the answers are correct (iii) Calculate the nominal price of land in 10 years. a. $3,612 b. $9,964 c. $4,378 d. $3,979 e. None of the answers are correct (iv) Calculate the after-tax terminal value of the land. a. $2,000 b. $3,524 c. $3,979 d. $3,000 e. None of the answers are correct (v) Calculate the Present Value of the after-tax terminal value. a. $718 b. $1,429 c. $1,266 d. $1,077 e. None of the answers are correct (vi) What is the approximate maximum bid price for this land? a. $2,718 b. $3,077 c. $3,429 d. $3,266 e. None of the answers are correct
i)b ii) c iii) d iv) b v) c vi) e *** partially wrong
James is considering the purchase of 160 acres of land for $1,083.22 per acre. A bank will loan him $840 per acre of land and the loan will be fully amortized over 8 years at 13%. The outstanding balance of loan of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 24%. Suppose that the following information is given: Net Cash Flow before debt in Year 1= $126.00 Net Cash Flow before debt in Year 2= $125.00 Net Cash Flow before debt in Year 3= $1,168.00 (i) How much down payment is needed? a. $29,575 b. $33,420 c. $38,915 d. $45, 475 e. None of the answers are correct (ii) Calculate the amount of loan payment per acre per period. a. $175 b. $201 c. $133 d. $152 e. None of the answers are correct (iii) Calculate the per acre tax savings from paying interest in Year 2. a. $24 b. $13 c. $14 d. $14 e. None of the answers are correct (iv) How much money needs to be generated from other parts of the business to cover the cash deficit in the 1st year, so the investment is financially feasible? a. $6,177 b. $4,154 c. $5,466 d. $3,492 e. None of the answers are correct (v) How much money needs to be generated in other parts of the business to cover the cash deficit in the 2nd year, so that the investment is financially feasible? a. $6,164 b. $5,891 c. $3,977 d. $4,480 e. None of the answers are correct
i)c ii)a iii)e iv)d v)d **partially wrong
Operating Lease are short-term rental arrangements (hourly, daily, weekly, monthly) in which the rental charge is calculated in a time basis. The ____ owns the asset and performs nearly all the functions of ownership, including maintenance. The ____ pays the direct costs, such as fuel and labor.
lessor;lessee
______ are the claims on the firm's assets by lenders and other creditors
liabilities
A rancher is planning on purchasing addition raw land to expand her operation. Assume that the marginal tax rate is 11%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 10 years. If the initial cost of an investment is $67,000. What is the annual depreciation expense for tax purposes?
none of the above answer:$737
Suppose Aggie International has hired you and are willing to pay you a signing bonus. They give will you one of three option. Option A: $10,000 today. Option B: Pay you a bonus of $1,500 per year at the beginning of the year for eight years (eight annual payments). They first bonus payment will be given today. Option C: $17,000 in 10 years. Calculate the how much you would have in your savings account in ten years for option A, B, and C if the bonus is put in a savings account drawing six percent compounded annually. Which option should you choose?
option A
Discounting is the process of finding_____ values
present
The time value concept/calculation used in amortizing a loan is
present value of an annuity
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 procedure for evaluating the effects of investment choices on a business's profitability, ______, and liquidity.
risk
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
scenario
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.
scenario
