FINA 4534Chapter 2

FINA
FINA4534Chapter
4534Chapter2 2

Chapter 02
How to Calculate Present Values

Multiple Choice Questions



1. The present value of $100 expected in two years from today at a discount rate of 6%
is: A. $116.64
B. $108.00
C. $100.00
D. $89.00



2. Present Value is defined as:
A. Future cash flows discounted to the present at an appropriate discount rate
B. Inverse of future cash flows
C. Present cash flow compounded into the future
D. None of the above



3. If the interest rate is 12%, what is the 2-year discount
factor? A. 0.7972
B. 0.8929
C. 1.2544
D. None of the above



4. If the present value of the cash flow X is $240, and the present value cash flow Y
$160, then the present value of the combined cash flow is:
A. $240
B. $160
C. $80
D. $400




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5. The rate of return is also called: 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. None of the given ones



6. Present value of $121,000 expected to be received 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. None of the above



7. One year discount factor at a discount rate of 25% per year
is: A. 1.25
B. 1.0
C. 0.8
D. None of the above



8. The one-year discount factor at an interest rate of 100% per year
is: A. 1.5
B. 0.5
C. 0.25
D. None of the above



9. Present Value of $100,000 that is, expected, to be received at the end of one year at a
discount rate of 25% per year is:
A. $80,000
B. $125,000
C. $100,000
D. None of the above




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10. If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per
year? A. 10%
B. 20%
C. 30%
D. None of the above



11. If the present value of $480 to be paid at the end of one year is $400, what is the one-
year discount factor?
A. 0.8333
B. 1.20
C. 0.20
D. None of the above



12. If the present value of $250 expected to be received one year from today is $200, what
is the discount rate?
A. 10%
B. 20%
C. 25%
D. None of the above



13. If the one-year discount factor is 0.90, what is the present value of $120 to be received
one year from today?
A. $100
B. $96
C. $108
D. None of the above



14. If the present value of $600 expected to be received one year from today is $400, what
is the one-year discount rate?
A. 15%
B. 20%
C. 25%
D. 50%




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15. The present value formula for one period cash flow is:
A. PV = C1(1 + r)
B. PV = C1/(1 + r)
C. PV = C1/r
D. None of the above



16. The net present value formula for one period is:
I) NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and III) NPV = C0/C1
A. I only
B. I and II only
C. III only
D. None of the above



17. An initial investment of $400,000 will produce an end of year cash flow of $480,000.
What is the NPV of the project at a discount rate of 20%?
A. $176,000
B. $80,000
C. $0 (zero)
D. None of the above



18. If the present value of a cash flow generated by an initial investment of $200,000 is
$250,000,
what is the NPV of the project?
A. $250,000
B. $50,000
C. $200,000
D. None of the above




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