NOTE: For multiple-choice and true/false questions, simply place your cursor over what you think is the correct answer. (There is no need to click the answer.) For fill-in-the-blank questions place your cursor over the _________.
If you have difficulty answering the following questions, learn more about this topic by reading our Evaluating Business Investments Explanation.
Use the following "present value of 1" factors for solving drills that require present value computations.
| End of Year |
6% |
8% |
10% |
12% |
16% |
| 1 |
0.94 |
0.93 |
0.91 |
0.89 |
0.86 |
| 2 |
0.89 |
0.86 |
0.83 |
0.80 |
0.74 |
| 3 |
0.84 |
0.79 |
0.75 |
0.71 |
0.64 |
| 4 |
0.79 |
0.74 |
0.68 |
0.64 |
0.55 |
| 5 |
0.75 |
0.68 |
0.62 |
0.57 |
0.48 |
| 5. |
A company is contemplating an investment of $100,000 on January 1, 2007 that will return cash of $50,000 on December 31, 2007; $40,000 on December 31, 2008; and $60,000 on December 31, 2009. Using the present value of 1 factors for 16% (see above), the net present value of this investment is |
|
($11,000)
$11,000
$100,000
$111,000
|
| 6. |
A $100,000 investment will be made on January 1, 2011. The cash generated from this investment is expected to be received uniformly during each year. The yearly amounts are: $50,000 in year 2011; $40,000 in year 2012; $60,000 in year 2013. What is the expected payback period? |
|
2.0 years
2.1 years
2.17 years
3 years
|
| 8. |
Depreciation Expense is a negative cash flow that needs to be discounted. |
True |
False |
| 9. |
While depreciation does not result in a payment of cash, tax depreciation does reduce the cash payments for income taxes. |
True |
False |
| 10. |
Depreciation Expense can be ignored when computing the accounting rate of return. |
True |
False |
| 11. |
If the net present value of a project is $0, the project should be rejected. |
True |
False |
| 12. |
A project whose future cash flows are discounted by 10% will have a larger net present value than the same cash flows discounted by 8%?
|
True |
False |
| 13. |
What amount would you invest today in return for a one-time $10,000 receipt one year from today, if you want to earn 8%? (Use the factors above.) |
|
$9,200
$9,300
$9,920
|
| 14. |
How much would you invest today in return for $20,000 to be received two years from today, if you want to earn 10%? (Use the factors above.) |
|
$16,000
$16,600
$18,260
|
| 15. |
A potential investment today will provide the following cash receipts
| End of first year | $2,000 |
| End of second year | 0 |
| End of third year | 4,000 |
If you want to earn a 12% internal rate of return, how much would you invest today to receive these cash amounts? (Use the factors above.)
|
|
$4,260
$4,620
$4,980
|
| 16. |
If you invest $68,000 today and get repaid $100,000 at the end of five years, what is the internal rate of return on your investment? (Use the factors above.) |
|
6%
8%
10%
12%
16%
|
| 17. |
If you invest $15,900 today and receive $10,000 at the end of one year plus $10,000 at the end of four years, what is the internal rate of return on your investment? (Use the factors above.) |
|
6%
8%
10%
12%
16%
|
| 18. |
If you invest $15,300 today and receive $10,000 at the end of one year and $10,000 at the end of four years, what is the internal rate of return on your investment? (Use the factors above.) |
|
6%
8%
10%
12%
16%
|
| 19. |
You invest $10,000 immediately plus an additional $100,000 at the end of one year. If the time value of money is 10%, what is the present value of your investment? (Use the factors above.) |
|
$100,000
$101,000
$110,000
|
| 20. |
The state lottery offers a $500,000 prize consisting of $100,000 immediately and then four annual payments of $100,000 each. If the winner prefers to receive an immediate lump sum, the state discounts the future payments by 6%. What will be the immediate lump sum amount before any taxes? (Use the factors above.) |
|
$346,000
$400,000
$446,000
$470,000
|
