BA220 Part 3 (Right One)

4. Which of the following statements concerning the NPV is not true? A. The NPV technique takes account of the time value of money. B. The NPV technique takes account of all the cash flows associated with a project. C. If two competing projects are being considered, the one expected to yield the lowest NPV should be selected. D. The NPV of a project is the sum of all the discounted cash flows associated with a project.

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If the interest rate is 7%, then the present value of $40,000 that you expect to get after 15 years is A. $14,497.84 B. $15,037.48 C. $106,400.80 D. $110,361.26

D. $110,361.26 =40000*(1+0.07)^15

The future value of $1100, compounding at the rate of 6% annually, after 10 years is A. $1600.00 B. $1790.85 C. $1819.40 D. $1969.93

D. $1969.93 FV= PV (1+r)^n =1100*(1+0.06)^10 =1969.93

The present value of $5000 that you will get after 10 years, discounting at the rate of 5% per year, is A. $2508.91 B. $2899.77 C. $2965.34 D. $3069.57

D. $3069.57 PV= FV/ (1+r)^n =5000/(1+0.05)^10

Suppose an investor wants to have $10 million to retire 45 years from now. How much would she have to invest today with an annual interest equal to 15 percent? A. $18,561 B. $17,844 C. $20,003 D. $21,345

A. $18,561 =10000000/(1+0.15)^45

1. Martin Corporation is considering an investment in new equipment costing $150,000. The equipment is expected to generate net cash inflows of $55,000 the first​ year, $20,000 the second​ year, and $82,000 every year thereafter until the fifth year. What is the payback period for this​ investment? The equipment has no residual value. A. 2.91 years B. 3.91 years C. 2.37 years D. 1.55 years

A. 2.91 years 150000-55000-20000 / 82000 0.914 + 2 2.91

5. Which of the following statements concerning the payback period, is not true? A. It takes account of the time value of money. B. The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment. C. The payback period is simple to calculate and understand. D. The payback period ignores cash flows after the payback point has been reached.

A. It takes account of the time value of money. Discounted payback NPV is different than NPV.

3.You are explaining time value of money factors to your friend. Which factor would you explain as being larger? A. The future value of $1 for 12 periods at 6% is larger. B. The present value of $1 for 12 periods at 6% is larger. C. Neither one is larger because they are equal. D. There is not enough information given to answer this question.

A. The future value of $1 for 12 periods at 6% is larger.

A stakeholder is: A. a person who owns shares of stock. B. any person or entity other than a stockholder or creditor who potentially has an interest in a firm. C. a person who initially founded a firm and currently has management control over that firm. D. a creditor to whom a firm currently owes money.

A. a person who owns shares of stock.

6. The process of choosing among different alternative investments due to limited resources is referred to as A. capital rationing. B. capital investing. C. resource allocation. D. resource rationing.

A. capital rationing.

Which one of the following is a working capital management decision? A. determining whether to pay cash for a purchase or use the credit offered by the supplier B. determining the amount of long-term debt required to complete a project. C. determining the number of shares of stock to issue to fund an acquisition. D. determining whether or not a project should be accepted

A. determining whether to pay cash for a purchase or use the credit offered by the supplier

In 4 years you are to receive $5,000. If the interest rate were to suddenly increase, the present value of that future amount to you would A. fall. B. rise. C. remain unchanged. D. cannot be determined without more information.

A. fall. FV = 5000 N=4 R=5% 5000/ (1.05)^4 4113.512374 R=10% 5000/ (1.04)^4 3274.020955

The amount money a person expects to have in the future is called__________. A. Principal B. Future Value C. Simple Interest D. Present Value

B. Future Value

The idea that money to be paid out or received in the future is not equivalent to money paid out or received today A. SMART Money B. Time Value of Money C. PV/FV Money D. Compound Money

B. Time Value of Money

The long-run objective of financial management is to: A. maximize earnings per share. B. maximize the value of the firm's common stock. C. maximize return on investment. D. maximize market share.

B. maximize the value of the firm's common stock.

Interest paid (earned) on only the original principal borrowed (lent) is often referred to as __________. A. present value B. simple interest C. future value D. compound interest

B. simple interest

The future value of $10,000 after 11 years, growing at the rate of 12% per year is A. $34,237.40 B. $34,522.71 C. $34,785.50 D. $34,984.51

C. $34,785.50 =10000*(1+0.12)^11

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. articles of incorporation B. corporate breakdown C. agency problem D. time value of money

C. agency problem

7. The term​ ________ is best described as​ "a stream of equal installments made at equal time intervals​." A. capital budgeting B. time value of money C. annuity D. payback period

C. annuity

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment? A. I and IV only B. II and III only C. I, II, and III only D. II, III, and IV only

D. II, III, and IV only

Which one of the following terms is defined as the management of a firm's long-term investments? A. working capital management D. capital structure C. agency cost analysis D. capital budgeting

D. capital budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. working capital management B. cash management C. capital budgeting D. capital structure

D. capital structure

Interest paid (earned) on both the original principal borrowed (lent) and previous interest earned is often referred to as __________. A. present value B. simple interest C. future value D. compound interest

D. compound interest

The market price of a share of common stock is determined by: A. the board of directors of the firm. B. the stock exchange on which the stock is listed. C. the president of the company. D. individuals buying and selling the stock.

D. individuals buying and selling the stock.

2. The second step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would be an acceptable baseline criterion? A. Present Value B. Time value of money C. inventory turnover D. payback method

D. payback method

"Shareholder wealth" in a firm is represented by: A. the number of people employed in the firm. B. the book value of the firm's assets less the book value of its liabilities. C. the amount of salary paid to its employees. D. the market price per share of the firm's common stock.

D. the market price per share of the firm's common stock.

Alex's grandmother has $10,000 in a bank account that is not earning interest. Alex is 12 years old, and his grandmother has promised to give him this $10,000 to spend on college tuition - once he graduates from high school in six years. Alex understands the time value of money, so he wants to persuade his grandmother to put the money in an S&P index fund instead. Although no one can be sure what the rate of return will be, historically S&P funds have earned an average of 10% per year. Calculate the future value of the $10,000 (in six years) if the money was invested at a 10% annual return instead. b. Assume compounding is per quarter.

a. = 10000*(1+0.025)^(6*4) = 18087.2595

Alex's grandmother has $10,000 in a bank account that is not earning interest. Alex is 12 years old, and his grandmother has promised to give him this $10,000 to spend on college tuition - once he graduates from high school in six years. Alex understands the time value of money, so he wants to persuade his grandmother to put the money in an S&P index fund instead. Although no one can be sure what the rate of return will be, historically S&P funds have earned an average of 10% per year. Calculate the future value of the $10,000 (in six years) if the money was invested at a 10% annual return instead. a. Assume compounding is only once a year.

a. = 10000*(1+0.1)^6 = 17715.61

Sofia has a government bond that will be worth $500 when it matures in 5 years. She wants to sell it to her brother because she needs the cash now for car repairs. a. Assuming an interest rate of 3% and monthly compounding, what is the present value of the bond?

a. =500/(1+0.0025)^60 , 0.03/12 = 0.0025, 5*12=60 b. =500/(1+0.0025)^60= 430.434553

Sofia has a government bond that will be worth $500 when it matures in 5 years. She wants to sell it to her brother because she needs the cash now for car repairs. b. Assuming an interest rate of 3% and compounding is only once a year, what is the present value of the bond?

a. =500/(1+0.03)^5 = 431.304392