Exam 11: Input Demand: the Capital Market and the Investment Decision

A fund that takes household savings and puts them into high-risk ventures in exchange for a share of the profits if the new business succeeds is a(n)

Existing firms will want to leave the rental car industry if the normal rate of return in the industry is ________ and the return that firms earn in this industry equals exactly ________.

Related to the Economics in Practice on page 238: Returns in the stock market are ________ than the returns on government bonds.

You work as a forecaster for a luxury automobile manufacturer. You know that there is a strong positive relationship between the demand for luxury automobiles and income levels. The government issues a report predicting that it expects income levels to increase steadily over the next 5 years. All else equal, which of the following courses of action would you recommend to the firm?

The further in the future a payment is received, the more it is worth today.

You win a lottery that pays $10,000 each year for the next 5 years beginning next year. How much are your winnings worth today?

________ is an example of intangible capital.

One of the most important forms of capital income is

You borrow $20,000 at an interest rate of 6% to open Candy Dan's, a gourmet sweet shop. You will earn an economic profit if the return on your investment is

Assume the current interest rate is 20%. The present value of $500 in one year would be

The added return an investor needs to compensate for the risks of future payments is called a(n)

You agree to lend ________ to a friend for a year at an annual interest rate of 10%. At the end of the year your friend pays you $600 in interest.

A clothing manufacturer produced 5,000 sweaters, but sold only 4,000 of them. The remaining 1,000 sweaters would be classified as

In the economy as a whole, lower interest rates are likely to ________ investment and higher interest rates are likely to ________ investment.

There is an opportunity cost associated with

Economists use the term ________ to refer to the creation of new capital.

Assume the current interest rate is 25%. The present value of $1,000 in one year would be

Capital goods yield benefits

Dynaflex Corp. is considering an investment project that costs $900 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Refer to the data provided in Table 11.1 below to answer the following question(s). Table 11.1 Total Investment Expected Rate of Return Project (dollars) (percentage) New tablet computer for sales staff \ 500,000 22 Remodel for distribution center \ 400,000 18 On-site day care center \ 200,000 10 Employee fitness center \ 100,000 8 -Refer to Table 11.1. If the interest rate is 28%, Nashbar Bicycle should