Principles of Corporate Finance Brealey 11th Edition Test Bank
Name: Principles of Corporate Finance
Author: Brealey Myers Allen
Edition: 11th
Chapter 02 How to Calculate Present Values Answer Key
Multiple Choice Questions
1. The present value of $100.00 expected two years from today at a discount rate of 6% is:
A. $112.36.
B. $106.00.
C. $100.00.
D. $89.00.
PV = 100/(1.06^2) = 89.00.
Type: Easy
2. Present value is defined as:
A. future cash flows discounted to the present by an appropriate discount rate.
B. inverse of future cash flows.
C. present cash flows compounded into the future.
D. future cash flows multiplied by the factor (1 + r)t.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
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3. If the annual interest rate is 12.00%, what is the two-year discount factor?
A. 0.7972
B. 0.8929
C. 1.2544
D. 0.8065
DF2 = 1/(1.12^2) = 0.7972.
Type: Easy
4. If the present value of cash flow X is $240, and the present value of cash flow Y is $160, then
the present value of the combined cash flows is:
A. $240.
B. $160.
C. $80.
D. $400.
PV (x + y) = PV (x) + PV (y) = 240 + 160 = 400.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
, Principles of Corporate Finance Brealey 11th Edition Test Bank
5. The rate of return is also called the: I) discount rate; II) hurdle rate; III) opportunity cost of
capital
A. I only.
B. I and II only.
C. I, II, and III.
D. I and III only.
Type: Easy
6. The present value of $121,000 expected one year from today at an interest rate (discount rate)
of 10% per year is:
A. $121,000.
B. $100,000.
C. $110,000.
D. $108,900.
PV = (121,000)/(1.10) = 110,000.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
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7. The one-year discount factor, at a discount rate of 25% per year, is:
A. 1.25.
B. 1.0.
C. 0.8.
D. 0.75.
Discount factor = 1/1.25 = 0.8.
Type: Easy
8. The one-year discount factor, at an interest rate of 100% per year, is:
A. 1.50.
B. 0.50.
C. 0.25.
D. 1.00.
Discount factor = 1/(1 + 1.00) = 0.5.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
Name: Principles of Corporate Finance
Author: Brealey Myers Allen
Edition: 11th
Chapter 02 How to Calculate Present Values Answer Key
Multiple Choice Questions
1. The present value of $100.00 expected two years from today at a discount rate of 6% is:
A. $112.36.
B. $106.00.
C. $100.00.
D. $89.00.
PV = 100/(1.06^2) = 89.00.
Type: Easy
2. Present value is defined as:
A. future cash flows discounted to the present by an appropriate discount rate.
B. inverse of future cash flows.
C. present cash flows compounded into the future.
D. future cash flows multiplied by the factor (1 + r)t.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
,2
3. If the annual interest rate is 12.00%, what is the two-year discount factor?
A. 0.7972
B. 0.8929
C. 1.2544
D. 0.8065
DF2 = 1/(1.12^2) = 0.7972.
Type: Easy
4. If the present value of cash flow X is $240, and the present value of cash flow Y is $160, then
the present value of the combined cash flows is:
A. $240.
B. $160.
C. $80.
D. $400.
PV (x + y) = PV (x) + PV (y) = 240 + 160 = 400.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
, Principles of Corporate Finance Brealey 11th Edition Test Bank
5. The rate of return is also called the: I) discount rate; II) hurdle rate; III) opportunity cost of
capital
A. I only.
B. I and II only.
C. I, II, and III.
D. I and III only.
Type: Easy
6. The present value of $121,000 expected one year from today at an interest rate (discount rate)
of 10% per year is:
A. $121,000.
B. $100,000.
C. $110,000.
D. $108,900.
PV = (121,000)/(1.10) = 110,000.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
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7. The one-year discount factor, at a discount rate of 25% per year, is:
A. 1.25.
B. 1.0.
C. 0.8.
D. 0.75.
Discount factor = 1/1.25 = 0.8.
Type: Easy
8. The one-year discount factor, at an interest rate of 100% per year, is:
A. 1.50.
B. 0.50.
C. 0.25.
D. 1.00.
Discount factor = 1/(1 + 1.00) = 0.5.
Type: Easy
Principles of Corporate Finance Brealey 11th Edition Test Bank
