Question 1

When the marginal rate of return expected from a purchase of equipment is less than the market interest rate, then the firm should

Accepted Answer

A) seek government assistance in decreasing the market interest rate 
B) inform stockholders that the company can expect increased earnings from the purchase 
C) either purchase or not purchase the equipment depending on the marginal resource cost of the equipment 
D) purchase the equipment 
E) not purchase the equipment 
A) seek government assistance in decreasing the market interest rate 
B) inform stockholders that the company can expect increased earnings from the purchase 
C) either purchase or not purchase the equipment depending on the marginal resource cost of the equipment 
D) purchase the equipment 
E) not purchase the equipment

Question 2

If the interest rate is 8 percent, $54 next year is worth __________ today.

Accepted Answer

A) $62 
B) $50.68 
C) $50 
D) $4.32 
A) $62 
B) $50.68 
C) $50 
D) $4.32

Question 3

The reward for forgoing present consumption is

Accepted Answer

A) rent 
B) profit 
C) roundabout production 
D) transfer payment 
E) interest 
A) rent 
B) profit 
C) roundabout production 
D) transfer payment 
E) interest

Question 4

Exhibit 13-8   In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.A technological breakthrough that increase the productivity of capital would result in a movement in this market from point a to

Accepted Answer

A) point b 
B) point c 
C) point d 
D) point f 
E) point g 
A) point b 
B) point c 
C) point d 
D) point f 
E) point g

Question 5

Exhibit 13-4   Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Assume that the personal computers are expected to last indefinitely, that operating expenses are negligible, and that the price of Memo's output is expected to remain constant in the future.As the number of personal computers Memo Co.might purchase increases to 120, the marginal rate of return on that kind of capital will

Accepted Answer

A) decrease from 24 percent and eventually become negative 
B) rise from 24 percent 
C) decrease from 24 percent but never become negative 
D) remain constant because the price of personal computers is constant 
E) remain constant because the increments being considered are constant 
A) decrease from 24 percent and eventually become negative 
B) rise from 24 percent 
C) decrease from 24 percent but never become negative 
D) remain constant because the price of personal computers is constant 
E) remain constant because the increments being considered are constant

Question 6

The present value of $200 to be paid to you at the end of two years, if the market interest rate is 5 percent, is

Accepted Answer

A) $181.41 
B) $190.00 
C) $210.00 
D) $225.78 
E) cannot be determined from the information given 
A) $181.41 
B) $190.00 
C) $210.00 
D) $225.78 
E) cannot be determined from the information given

Question 7

The market value of a bond is __________ related to the rate of interest.

Accepted Answer

A) directly 
B) inversely 
C) exactly 
D) sometimes 
E) never 
A) directly 
B) inversely 
C) exactly 
D) sometimes 
E) never

Question 8

The rate of time preference is positive

Accepted Answer

A) only when interest rates are positive 
B) because interest rates are positive 
C) only when people save 
D) because people save 
E) because people prefer goods now to the same goods later 
A) only when interest rates are positive 
B) because interest rates are positive 
C) only when people save 
D) because people save 
E) because people prefer goods now to the same goods later

Question 9

Exhibit 13-3   Exhibit 13-3 gives data on the number of tools a certain firm buys to use in its production process.Assume that the tools are expected to last indefinitely, that operating expenses are negligible, and that the price of the firm's output is expected to remain constant in the future.At what interest rate would the firm in Exhibit 13-3 choose to buy 3 machines?

Accepted Answer

A) 5% 
B) 8% 
C) 12% 
D) 20% 
E) 24% 
A) 5% 
B) 8% 
C) 12% 
D) 20% 
E) 24%

Question 10

Securities exchanges pay no attention to hedge funds.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 13-2   Suppose that the data in Exhibit 13-2 describes a shop that sells photocopies at $0.10 each.At this price, the marginal revenue product of the fourth machine is

Accepted Answer

A) $0.10 
B) $0.40 
C) $4 
D) $40 
E) $400 
A) $0.10 
B) $0.40 
C) $4 
D) $40 
E) $400

Question 12

Exhibit 13-1   The movement from x to x' in Exhibit 13-1 represents a(n)

Accepted Answer

A) increase in roundabout production; future ability to produce consumer goods will be higher as a result 
B) increase in roundabout production; future ability to produce consumer goods will be lower as a result 
C) decrease in roundabout production; future ability to produce consumer goods will be higher as a result 
D) decrease in roundabout production; future ability to produce consumer goods will be lower as a result 
E) decrease in roundabout production but one that does not have an effect on future ability to produce consumer goods 
A) increase in roundabout production; future ability to produce consumer goods will be higher as a result 
B) increase in roundabout production; future ability to produce consumer goods will be lower as a result 
C) decrease in roundabout production; future ability to produce consumer goods will be higher as a result 
D) decrease in roundabout production; future ability to produce consumer goods will be lower as a result 
E) decrease in roundabout production but one that does not have an effect on future ability to produce consumer goods

Question 13

The concept of marginal productivity is applicable to

Accepted Answer

A) all of the following 
B) capital 
C) entrepreneurial talent 
D) land 
E) labor 
A) all of the following 
B) capital 
C) entrepreneurial talent 
D) land 
E) labor

Question 14

IBM's marginal rate of return on investment curve equals its

Accepted Answer

A) supply of loanable funds curve 
B) supply of investment curve 
C) marginal revenue product curve 
D) marginal revenue cost curve 
E) investment demand curve 
A) supply of loanable funds curve 
B) supply of investment curve 
C) marginal revenue product curve 
D) marginal revenue cost curve 
E) investment demand curve

Question 15

Laura Kaid owns a business and is willing to invest in capital until, at the margin, her investment yields a cash stream with a present value less than the marginal cost of the investment.

Accepted Answer

A) True 
 B)False

Question 16

A $100 annuity is

Accepted Answer

A) $100 received in a single year 
B) $100 received each year forever 
C) more or less than $100, dependent on the interest rate, received for a certain number of years 
D) $100 received each year for a certain number of years 
E) more or less than $100, dependent on the interest rate, received until an upper limit is reached 
A) $100 received in a single year 
B) $100 received each year forever 
C) more or less than $100, dependent on the interest rate, received for a certain number of years 
D) $100 received each year for a certain number of years 
E) more or less than $100, dependent on the interest rate, received until an upper limit is reached

Question 17

All types of capital

Accepted Answer

A) are forms of resources that can be used in future production 
B) require a physical existence 
C) earn an economic rent 
D) yield profits for their owners 
E) require obtaining more education and job skills 
A) are forms of resources that can be used in future production 
B) require a physical existence 
C) earn an economic rent 
D) yield profits for their owners 
E) require obtaining more education and job skills

Question 18

Sharing music files is not a(n)

Accepted Answer

A) victimless crime 
B) example of decisions about the use of capital 
C) issue regarding intellectual property 
D) current problem 
E) important issue for the Recording Industry of America 
A) victimless crime 
B) example of decisions about the use of capital 
C) issue regarding intellectual property 
D) current problem 
E) important issue for the Recording Industry of America

Question 19

If the interest rate increases, the

Accepted Answer

A) cost of saving will increase 
B) cost of borrowing will increase 
C) firm should decrease the amount of capital it owns by selling capital 
D) firm should acquire more capital 
E) supply of loanable funds will increase 
A) cost of saving will increase 
B) cost of borrowing will increase 
C) firm should decrease the amount of capital it owns by selling capital 
D) firm should acquire more capital 
E) supply of loanable funds will increase

Question 20

The market demand curve for loanable funds represents the demand by

Accepted Answer

A) domestic firms 
B) domestic firms and domestic households 
C) domestic firms, households, and governments 
D) domestic firms and domestic governments 
E) domestic firms, households, governments, and the rest of the world 
A) domestic firms 
B) domestic firms and domestic households 
C) domestic firms, households, and governments 
D) domestic firms and domestic governments 
E) domestic firms, households, governments, and the rest of the world

Exam 13: Capital, Interest, and Corporate Finance

When the marginal rate of return expected from a purchase of equipment is less than the market interest rate, then the firm should

If the interest rate is 8 percent, $54 next year is worth __________ today.

The reward for forgoing present consumption is

Exhibit 13-8 In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.A technological breakthrough that increase the productivity of capital would result in a movement in this market from point a to

The present value of $200 to be paid to you at the end of two years, if the market interest rate is 5 percent, is

The market value of a bond is __________ related to the rate of interest.

The rate of time preference is positive

Securities exchanges pay no attention to hedge funds.

Exhibit 13-2 Suppose that the data in Exhibit 13-2 describes a shop that sells photocopies at $0.10 each.At this price, the marginal revenue product of the fourth machine is

Exhibit 13-1 The movement from x to x' in Exhibit 13-1 represents a(n)

The concept of marginal productivity is applicable to

IBM's marginal rate of return on investment curve equals its

Laura Kaid owns a business and is willing to invest in capital until, at the margin, her investment yields a cash stream with a present value less than the marginal cost of the investment.

A $100 annuity is

All types of capital

Sharing music files is not a(n)

If the interest rate increases, the

The market demand curve for loanable funds represents the demand by

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

Filters

Exhibit 13-8 In Exhibit 13-8, D₀and S₀ represent the initial demand and supply of loanable funds.A technological breakthrough that increase the productivity of capital would result in a movement in this market from point a to