# CHAPTER 17

Document Sample

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CHAPTER 17

SAMPLE TEST QUESTIONS - MULTIPLE CHOICE

1. The process of finding the future value of a present sum is called
a compounding
b. discounting
c. amortizing
d. budgeting

2. The process of finding the present value of a future sum is called
a. compounding
b. discounting
c. amortizing
d. budgeting

3. A series of periodic payments is called a(n)
a. budget
b. present value
c. future value
d. annuity

4. Using a higher discount rate will cause the present value of a future amount to
a. increase
b. decrease
c. remain constant
d. increase for short time periods but decrease for time periods of over 10 years

5. A net present value of zero means the investment has an internal rate of return
a. greater than the discount rate
b. less than the discount rate
c. exactly equal to the discount rate
d. equal to zero

6. The internal rate of return is the interest rate that would
a. make net present value just equal to zero
b. make net present value greater than zero
c. make sure the investment would be financially feasible
d. generate a positive net cash flow from the investment

7. The future value of \$10,000 placed in a savings account will depend on
a. the interest rate
b. the time it is left in the account
c. both the interest rate and time in the account
d. the discount rate
Chap 17-2

8. A financial feasibility analysis looks at the
a. the net present value of the investment
b. the internal rate of return for the investment
c. the payback period for the investment
d. net cash flows resulting from the investment and its financing

9. When computing the after-tax net present value of an investment
a. cash flows need to be adjusted for increased or decreased income taxes
b. the discount rate should be reduced by the marginal tax rate
d. both cash flows and the discount rate need to be adjusted

10. When finding the net present value of an investment considering inflation
a. all cash flows should be increased by their expected rate of inflation
b. the discount rate should be a nominal rate
c. both of the above
d. neither of the above

SAMPLE TEST QUESTIONS - TRUE/FALSE

T F 1. Any investment that has a positive net present value will also be financially
feasible.

T F    2. Depreciation is not included when computing the net cash flows from an
investment.

T F 3. A \$1,000 of income 5 years from now is worth the same as \$1,000 of income
today.

T F 4. The most accurate way to analyze the profitability of an investment is to
compute the payback period.

T F    5. Income taxes can affect the profitability of an investment.

T F 6. The simple rate of return and the internal rate of return will be the same for
any investment.

T F    7. The higher the interest rate the smaller the annual payment needed to
accumulate a given amount 10 years from now.

T F    8. A person requiring only a 6 percent return could pay more for an investment
than someone requiring an 8 percent return.
Chap 17-3

T F    9. If a positive rate of inflation is expected, the real discount rate is smaller than
the nominal discount rate.

T F 10. Some cash inflows may be taxed at different rates than others.

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