Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the cash as a lump sum right now? Please refer to the following data, if needed: \[\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Present Value of } \\ \text { an Annuity of \$1 } \end{array} & & & & & & \\ \hline 1 & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\ \hline 2 & 1.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\ \hline 3 & 2.723 & 2.83 & 1.808 & 1.783 & 1.759 & 1.736 \\ \hline 4 & 3.546 & 3.465 & 2.624 & 2.577 & 2.531 & 2.487 \\ \hline 5 & 4.329 & 4.21 & 4.100 & 3.312 & 3.240 & 3.170 \\ \hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 3.890 & 3.79 \\ \hline 7 & 5.786 & 5.58 & 5.389 & 5.206 & 5.033 & 4.355 \\ \hline 8 & 6.463 & 6.210 & 5.971 & 5.747 & 5.535 & 5.335 \\ \hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 & 5.759 \\ \hline 10 & 7.722 & 7.360 & 7.024 & 6.710 & 6.418 & 6.145 \\ \hline \end{array}\]

A) $380,000 B) $386,100 C) $321,000 D) $399,000 A) $380,000 B) $386,100 C) $321,000 D) $399,000

Centurion Company is considering a mineral extraction project which requires an initial investment of $2,000,000 and will yield annual cash flows of $300,000 for 8 years. Centurion has an 8% hurdle rate. What is the NPV of the project? $\begin{array}{|r|l|l|l|l|l|l|} \hline\text {Present Value of }\\ \text {an Annuity of }\\ \$ 1\\ \hline &5\%&6\%&7\%&8\%&9\%&10\%\\ \hline1 & 0.952 & 0.943 & 0.939 & 0.92 & 0.917 & 0.909 \\ \hline 2& 1.859 & 1.833 & 1.809 & 1.78 & 1.759 & 1.736 \\ \hline 3 & 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\ \hline 4 & 3.546 & 3.465 & 3.387 & 3.31 & 3.240 & 3.170 \\ \hline 5 & 4.329 & 4.212 & 4.10 & 3.99 & 3.890 & 3.791 \\ \hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 4.486 & 4.355\\ \hline 7& 5.780 & 5.582 & 5.389 & 5.206& 5.033 &4.355 \\ \hline 8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535 &5.335 \\ \hline9& 7.108 & 6.802 & 6.513 & 6.247 & 5.995 &5.759 \\ \hline 10&7.722 & 7.360 & 7.024 & 6.710 & 6.418 &6.145 \\ \hline \end{array}$

A) Positive $275,900 B) Negative $275,900 C) Positive $103,184 D) Negative $240,000 A) Positive $275,900 B) Negative $275,900 C) Positive $103,184 D) Negative $240,000

If $1,000 is invested in an account with 4% interest compounding yearly, what will the balance of the account be after 4 years? Please refer to the following Future Value table: \[\begin{array} {| r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\ \text { Value of } \\ \text { \$1 } \end{array} & & & & \\ \hline & 4 \% & 5 \% & 6 \% & 7 \% \\ \hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\ \hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\ \hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\ \hline 4 & 1.170 & 1.216 & 1.262 & 1.311 \\ \hline 5 & 1.217 & 1.276 & 1.338 & 1.403 \\ \hline 6 & 1.265 & 1.340 & 1.419 & 1.501 \\ \hline \end{array}\]

A) $1,218 B) $1,170 C) $1,040 D) $1,240 A) $1,218 B) $1,170 C) $1,040 D) $1,240

$23,000 invested today in an account with 5% interest compounding yearly will grow to what amount in 6 years? $\begin{array}{|c|c|c|c|c|c|c|} \hline\text { Future } \\ \text { Value of } \\ \$ 1\\ \hline&4\%&5\%&6\%&7\%&8\%&9\%\\ \hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\ \hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\ \hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\ \hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\ \hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\ \hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\ \hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\ \hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\ \hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\ \hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\ \hline \end{array}$

A) $29,800 B) $22,490 C) $30,820 D) $32,637 A) $29,800 B) $22,490 C) $30,820 D) $32,637

Quasar Company is evaluating an investment that will cost $520,000 and will yield cash flows of $300,000 in the first year, $200,000 in the second year, and $100,000 in the third and final year. Please use the tables below and determine the internal rate of return. \[\begin{array} { | r | r | r | r | r | r | r | } \hline\text { Present Value of } \$ 1\\ \hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\ \hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\ \hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\ \hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\ \hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\ \hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\ \hline \end{array}\] Please choose the percentage below that comes closest to the actual IRR.

A) 7% B) 8% C) 9% D) 10% A) 7% B) 8% C) 9% D) 10%

Juan has just received a prize which entitles him to receive annual payments of $10,000 at the end of each year for the next 10 years. He would like to sell the rights to the prize money to a financial institution, so that he can have the cash now. In order to estimate the present value of the prize, he will use a discount rate of 5%. What is the present value of the prize? $\begin{array}{|r|c|c|c|c|c|c|} \hline \text {Present Value of }\\ \text {an Annuity of \$ 1}\\ \hline &5\%&6\%&7\%&8\%&9\%&10\%\\ \hline1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\ \hline 2& 1.859 & 1.833 & 1.808 & 1.783 & 1.759 & 1.736 \\ \hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\ \hline 4 & 3.546 & 3.465 & 3.387 & 3.312 & 3.240 & 3.170 \\ \hline 5& 4.329 & 4.212 & 4.100 & 3.993 & 3.890 & 3.791 \\ \hline6& 5.076 & 4.917 & 4.767 & 4.623 & 4.486&4.355 \\ \hline7& 5.786& 5.582 & 5.389 & 5.206 & 5.033&4.868 \\ \hline8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535&5.335 \\ \hline9& 7.108 & 6.802 & 6.515 & 6.247 & 5.995&5.759\\ \hline 10&7.722& 7.360 & 7.024 & 6.710&6.418&6.145 \\ \hline \end{array}$

A) $61,450 B) $71,080. C) $77,220 D) $71,080 A) $61,450 B) $71,080. C) $77,220 D) $71,080

Please refer to the following data about an investment opportunity: \[\begin{array} { | r | r | } \hline \text { Initial investment } & \$ 500,000 \\ \hline \text { Discount rate } & 10 \% \\ \hline \text { Yearly cash flows } & \\ \hline \text { Year } 1 & \$ 100,000 \\ \hline \text { Year } 2 & \$ 200,000 \\ \hline \text { Year 3 } & \$ 200,000 \\ \hline \text { Year 4 } & \$ 200,000 \\ \hline \text { Year 5 } & \$ 100,000 \\ \hline \end{array}\] Refer to the following table for PV factors: \[\begin{array} { | r | r | r | r | r | r | r | } \hline \text { Preant Value of } & & & & & & \\ \$1\\ \hline &5\%&6\%&7\%&8\%&9\%&10\%\\ \hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\ \hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\ \hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\ \hline 4 & 0.823 & 0.79 & 0.763 & 0.735 & 0.708 & 0.683 \\ \hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\ \hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 & 0.564 \\ \hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 & 0.513 \\ \hline 8 & 0.677 & 0.627 & 0.582 & 0.540 & 0.502 & 0.467 \\ \hline 9 & 0.645 & 0.592 & 0.544 & 0.500 & 0.460 & 0.424 \\ \hline 10 & 0.614 & 0.558 & 0.508 & 0.463 & 0.422 & 0.386 \\ \hline \end{array}\] How much is the NPV of the project?

A) $9,500 negative B) $94,220 positive C) $105,000 positive D) $240,000 positive A) $9,500 negative B) $94,220 positive C) $105,000 positive D) $240,000 positive

Harvard Investments is considering an opportunity which will require an initial outlay of $100,000 but will return cash flows for the next 5 years as follows: $10,000 in Year 1, $20,000 in Year 2, $30,000 in Year 3, $40,000 in Year 4, and $50,000 in Year 5. If Harvard uses a discount rate of 9%, how much is the NPV of the project? \[\begin{array} { | r | r | r | r | r | r | r | } \hline \text { Preant Value of } & & & & & & \\ \$1\\ \hline &5\%&6\%&7\%&8\%&9\%&10\%\\ \hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\ \hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\ \hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\ \hline 4 & 0.823 & 0.79 & 0.763 & 0.735 & 0.708 & 0.683 \\ \hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\ \hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 & 0.564 \\ \hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 & 0.513 \\ \hline 8 & 0.677 & 0.627 & 0.582 & 0.540 & 0.502 & 0.467 \\ \hline 9 & 0.645 & 0.592 & 0.544 & 0.500 & 0.460 & 0.424 \\ \hline 10 & 0.614 & 0.558 & 0.508 & 0.463 & 0.422 & 0.386 \\ \hline \end{array}\]

A) $2,400 positive B) $1,090 negative C) $9,990 positive D) $5,867 positive A) $2,400 positive B) $1,090 negative C) $9,990 positive D) $5,867 positive

If $2,000 is invested in an account with 5% interest compounding yearly, what will the balance of the account be after 6 years? Please refer to the following Future Value table: \[\begin{array} {| r | r | r | r | r | } \hline\begin{array} { l } \text { Future } \\ \text { Value of } \\ \text { s1 } \end{array} & & & & \\ \hline & 4 \% & 5 \% & 6 \% & 7 \% \\ \hline 1 & 1.040 & 1.050 & 1.060 & 1.070 \\ \hline 2 & 1.082 & 1.103 & 1.124 & 1.145 \\ \hline 3 & 1.125 & 1.158 & 1.191 & 1.225 \\ \hline 4 & 1.170 & 1.216 & 1.262 & 1.311 \\ \hline 5 & 1.217 & 1.276 & 1.338 & 1.403 \\ \hline 6 & 1.265 & 1.340 & 1.419 & 1.501 \\ \hline \end{array}\]

A) $1,340 B) $2,680 C) $2,676 D) $2,432 A) $1,340 B) $2,680 C) $2,676 D) $2,432

If Arthur Godfried invests $1,000 today at a rate of 7% compounding yearly, what will the value of the investment be in 4 years? $\begin{array}{|c|c|c|c|c|c|c|} \hline\text { Future } \\ \text { Value of } \\ \$ 1\\ \hline&4\%&5\%&6\%&7\%&8\%&9\%\\ \hline 1& 1.040 & 1.050 & 1.060 & 1.070 & 1.080 & 1.090 \\ \hline 2& 1.082 & 1.103 & 1.124 & 1.145 & 1.166 & 1 .188 \\ \hline 3 & 1.125 & 1.158 & 1.191 & 1.225 & 1.260 &1.295 \\ \hline 4 & 1.170 & 1.216 & 1.261 & 1.311 & 1.360 &1.412 \\ \hline 5 & 1.217 & 1.276 & 1.338 & 1.403 & 1.469 & 1.539\\ \hline 6 & 1.265 & 1.340 & 1.410 & 1.501 & 1.587 &1.677 \\ \hline 7 & 1.316 & 1.407 & 1.504 & 1.606 & 1.714 &1.828 \\ \hline 8 & 1.369 & 1.477 & 1.594 & 1.718 & 1.851 &1.993 \\ \hline 9 & 1.423 & 1.551 & 1.689 & 1.838 & 1.999 & 2.172 \\ \hline 10& 1.480 & 1.629 & 1.791 &1.967 & 2.159 &2.367 \\ \hline \end{array}$

A) $1,311 B) $1,967 C) $1,316 D) $1,000 A) $1,311 B) $1,967 C) $1,316 D) $1,000

Please refer to the following data concerning 4 investment alternatives: $\begin{array}{|l|r|r|r|r} \hline & \text { Praject A } & { \text { Praject B } } & { \text { Praject C } } & { \text { Praject D } } \\ \hline \text { Initial investment } & \$ 210,000 & \$ 400,000 & \$ 550,000 & \$ 1,000,000 \\ \hline \text { PV of cash } \\ \text { Inflows } & \$ 285,000 & \$ 490,000 & \$ 800,000 & \$ 990,000 \\ \hline \text { Payback period } & \\ \text { (years) } & 7.2 & 6.0 & 9.5 & 2.0 \\ \hline \text { NPV of project } & \$ 75,000 & \$ 90,000 & \$ 250,000 & (\$ 10,000 \\ \hline \end{array}$ - What is the profitability index for Project C?

A) 1.45 B) 1.38 C) 1.26 D) 1.23 A) 1.45 B) 1.38 C) 1.26 D) 1.23

Exam 21: Capital Investment Decisions and the Time Value of Money

Wasson Corporation is considering an investment project costing $520,000. The project is estimated to have an eight-year life, generate annual cash flows of $120,000, and have a salvage value of $40,000 after eight years. What is the project's payback period?

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Question 61

Juan has just received a prize which entitles him to receive annual payments of $10,000 for the next 10 years. In order to calculate the overall value of the prize today, which of the following tables would be the best for him to use?

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Question 62

When a company is evaluating an investment with discounted cash flows, if the investment has a higher risk, the company will use a lower discount rate, and vice versa.

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Question 63

Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the cash as a lump sum right now? Please refer to the following data, if needed: Present Value of an Annuity of \1 1 5\% 6\% 7\% 8\% 9\% 10\% 2 1.952 0.943 0.935 0.926 0.917 0.909 3 2.723 2.83 1.808 1.783 1.759 1.736 4 3.546 3.465 2.624 2.577 2.531 2.487 5 4.329 4.21 4.100 3.312 3.240 3.170 6 5.076 4.917 4.767 4.623 3.890 3.79 7 5.786 5.58 5.389 5.206 5.033 4.355 8 6.463 6.210 5.971 5.747 5.535 5.335 9 7.108 6.80 6.515 6.247 5.995 5.759 10 7.722 7.360 7.024 6.710 6.418 6.145

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Question 64

Centurion Company is considering a mineral extraction project which requires an initial investment of $2,000,000 and will yield annual cash flows of $300,000 for 8 years. Centurion has an 8% hurdle rate. What is the NPV of the project? Present Value of an Annuity of \ 1 5\% 6\% 7\% 8\% 9\% 10\% 1 0.952 0.943 0.939 0.92 0.917 0.909 2 1.859 1.833 1.809 1.78 1.759 1.736 3 2.723 2.673 2.624 2.577 2.531 2.487 4 3.546 3.465 3.387 3.31 3.240 3.170 5 4.329 4.212 4.10 3.99 3.890 3.791 6 5.076 4.917 4.767 4.623 4.486 4.355 7 5.780 5.582 5.389 5.206 5.033 4.355 8 6.463 6.210 5.971 5.747 5.535 5.335 9 7.108 6.802 6.513 6.247 5.995 5.759 10 7.722 7.360 7.024 6.710 6.418 6.145

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Question 65

If $1,000 is invested in an account with 4% interest compounding yearly, what will the balance of the account be after 4 years? Please refer to the following Future Value table: Future Value of \1 4\% 5\% 6\% 7\% 1 1.040 1.050 1.060 1.070 2 1.082 1.103 1.124 1.145 3 1.125 1.158 1.191 1.225 4 1.170 1.216 1.262 1.311 5 1.217 1.276 1.338 1.403 6 1.265 1.340 1.419 1.501

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Question 66

$23,000 invested today in an account with 5% interest compounding yearly will grow to what amount in 6 years? Future Value of \ 1 4\% 5\% 6\% 7\% 8\% 9\% 1 1.040 1.050 1.060 1.070 1.080 1.090 2 1.082 1.103 1.124 1.145 1.166 1.188 3 1.125 1.158 1.191 1.225 1.260 1.295 4 1.170 1.216 1.261 1.311 1.360 1.412 5 1.217 1.276 1.338 1.403 1.469 1.539 6 1.265 1.340 1.410 1.501 1.587 1.677 7 1.316 1.407 1.504 1.606 1.714 1.828 8 1.369 1.477 1.594 1.718 1.851 1.993 9 1.423 1.551 1.689 1.838 1.999 2.172 10 1.480 1.629 1.791 1.967 2.159 2.367

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Question 67

Quasar Company is evaluating an investment that will cost $520,000 and will yield cash flows of $300,000 in the first year, $200,000 in the second year, and $100,000 in the third and final year. Please use the tables below and determine the internal rate of return. Present Value of \ 1 5\% 6\% 7\% 8\% 9\% 10\% 1 0.952 0.943 0.935 0.926 0.917 0.909 2 0.907 0.890 0.873 0.857 0.842 0.826 3 0.864 0.840 0.816 0.794 0.772 0.751 4 0.823 0.792 0.763 0.735 0.708 0.683 5 0.784 0.747 0.713 0.681 0.650 0.621 Please choose the percentage below that comes closest to the actual IRR.

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Question 68

Sullivan Company is considering the purchase of a new machine costing $80,000. Sullivan's management is estimating that the new machine will generate additional cash flows of $12,000 a year for ten years and have a salvage value of $3,000 at the end of ten years. What is the machine's payback period?

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Question 69

Juan has just received a prize which entitles him to receive annual payments of $10,000 at the end of each year for the next 10 years. He would like to sell the rights to the prize money to a financial institution, so that he can have the cash now. In order to estimate the present value of the prize, he will use a discount rate of 5%. What is the present value of the prize? Present Value of an Annuity of \ 1 5\% 6\% 7\% 8\% 9\% 10\% 1 0.952 0.943 0.935 0.926 0.917 0.909 2 1.859 1.833 1.808 1.783 1.759 1.736 3 2.723 2.673 2.624 2.577 2.531 2.487 4 3.546 3.465 3.387 3.312 3.240 3.170 5 4.329 4.212 4.100 3.993 3.890 3.791 6 5.076 4.917 4.767 4.623 4.486 4.355 7 5.786 5.582 5.389 5.206 5.033 4.868 8 6.463 6.210 5.971 5.747 5.535 5.335 9 7.108 6.802 6.515 6.247 5.995 5.759 10 7.722 7.360 7.024 6.710 6.418 6.145

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Question 70

Please refer to the following data about an investment opportunity: Initial investment \ 500,000 Discount rate 10\% Yearly cash flows Year 1 \ 100,000 Year 2 \ 200,000 Year 3 \ 200,000 Year 4 \ 200,000 Year 5 \ 100,000 Refer to the following table for PV factors: Preant Value of \1 5\% 6\% 7\% 8\% 9\% 10\% 1 0.952 0.943 0.935 0.926 0.917 0.909 2 0.907 0.890 0.873 0.857 0.842 0.826 3 0.864 0.840 0.816 0.794 0.772 0.751 4 0.823 0.79 0.763 0.735 0.708 0.683 5 0.784 0.747 0.713 0.681 0.650 0.621 6 0.746 0.705 0.666 0.630 0.596 0.564 7 0.711 0.665 0.623 0.583 0.547 0.513 8 0.677 0.627 0.582 0.540 0.502 0.467 9 0.645 0.592 0.544 0.500 0.460 0.424 10 0.614 0.558 0.508 0.463 0.422 0.386 How much is the NPV of the project?

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Question 71

Which of the following is TRUE regarding capital rationing decisions for capital assets?

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Question 72

Harvard Investments is considering an opportunity which will require an initial outlay of $100,000 but will return cash flows for the next 5 years as follows: $10,000 in Year 1, $20,000 in Year 2, $30,000 in Year 3, $40,000 in Year 4, and $50,000 in Year 5. If Harvard uses a discount rate of 9%, how much is the NPV of the project? Preant Value of \1 5\% 6\% 7\% 8\% 9\% 10\% 1 0.952 0.943 0.935 0.926 0.917 0.909 2 0.907 0.890 0.873 0.857 0.842 0.826 3 0.864 0.840 0.816 0.794 0.772 0.751 4 0.823 0.79 0.763 0.735 0.708 0.683 5 0.784 0.747 0.713 0.681 0.650 0.621 6 0.746 0.705 0.666 0.630 0.596 0.564 7 0.711 0.665 0.623 0.583 0.547 0.513 8 0.677 0.627 0.582 0.540 0.502 0.467 9 0.645 0.592 0.544 0.500 0.460 0.424 10 0.614 0.558 0.508 0.463 0.422 0.386

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Question 73

The payback method and the rate of return method are often used to perform an initial screening of investments, rather than a detailed in-depth analysis.

(True/False)

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Question 74

If $2,000 is invested in an account with 5% interest compounding yearly, what will the balance of the account be after 6 years? Please refer to the following Future Value table: Future Value of s1 4\% 5\% 6\% 7\% 1 1.040 1.050 1.060 1.070 2 1.082 1.103 1.124 1.145 3 1.125 1.158 1.191 1.225 4 1.170 1.216 1.262 1.311 5 1.217 1.276 1.338 1.403 6 1.265 1.340 1.419 1.501

(Multiple Choice)

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Question 75

The internal rate of return (IRR) is the rate of return, based on discounted cash flows, that a company can expect to earn by investing in a capital asset.

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Question 76

A criticism of the rate of return method is that it ignores the time value of money.

(True/False)

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Question 77

If Arthur Godfried invests $1,000 today at a rate of 7% compounding yearly, what will the value of the investment be in 4 years? Future Value of \ 1 4\% 5\% 6\% 7\% 8\% 9\% 1 1.040 1.050 1.060 1.070 1.080 1.090 2 1.082 1.103 1.124 1.145 1.166 1.188 3 1.125 1.158 1.191 1.225 1.260 1.295 4 1.170 1.216 1.261 1.311 1.360 1.412 5 1.217 1.276 1.338 1.403 1.469 1.539 6 1.265 1.340 1.410 1.501 1.587 1.677 7 1.316 1.407 1.504 1.606 1.714 1.828 8 1.369 1.477 1.594 1.718 1.851 1.993 9 1.423 1.551 1.689 1.838 1.999 2.172 10 1.480 1.629 1.791 1.967 2.159 2.367

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Question 78

The payback method can only be used when the net cash inflows from a capital investment are the same for each period.

(True/False)

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Question 79

Please refer to the following data concerning 4 investment alternatives: Praject A Praject B Praject C Praject D Initial investment \ 210,000 \ 400,000 \ 550,000 \ 1,000,000 PV of cash Inflows \ 285,000 \ 490,000 \ 800,000 \ 990,000 Payback period (years) 7.2 6.0 9.5 2.0 NPV of project \ 75,000 \ 90,000 \ 250,000 (\ 10,000 - What is the profitability index for Project C?

(Multiple Choice)

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Question 80

Wasson Corporation is considering an investment project costing $520,000. The project is estimated to have an eight-year life, generate annual cash flows of $120,000, and have a salvage value of $40,000 after eight years. What is the project's payback period?

Juan has just received a prize which entitles him to receive annual payments of $10,000 for the next 10 years. In order to calculate the overall value of the prize today, which of the following tables would be the best for him to use?

When a company is evaluating an investment with discounted cash flows, if the investment has a higher risk, the company will use a lower discount rate, and vice versa.

Which of the following is TRUE regarding capital rationing decisions for capital assets?

The payback method and the rate of return method are often used to perform an initial screening of investments, rather than a detailed in-depth analysis.

The internal rate of return (IRR) is the rate of return, based on discounted cash flows, that a company can expect to earn by investing in a capital asset.

A criticism of the rate of return method is that it ignores the time value of money.

The payback method can only be used when the net cash inflows from a capital investment are the same for each period.

Corporations: Paid-In Capital and the Balance Sheet

Corporations: Effects on Retained Earnings and the Income Statement

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Management Accounting

Job Order and Process Costing

Activity-Based Costing and Other Cost Management Tools

Cost-Volume-Profit Analysis

Short-Term Business Decisions

The Master Budget and Responsibility Accounting

Flexible Budgets and Standard Costs

Performance Evaluation and the Balanced Scorecard

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