BUSINESS A 711N9Chap002-_answers
Chapter 02
How to Calculate Present Values Answer Key
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
PV = 100/(1.06^2) = 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
DF2 = 1/(1.12^2) = 0.7972
4. 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
Discount Factor = 1/1.25 = 0.8
5. 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
1 + r = 1/(0.8333) = 1.20; r = 20%
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6. 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
1 + r = 250 /200 = 1.25; r = 25%
7. What is the present value of the following cash flow at a discount rate of 9%?
A. $372,431.81
B. $450,000
C. $405,950.68
D. None of the above
PV = (100,000/1.09) + (150,000/(1.09^2)) + 200,000/(1.09^3) = 372,431.81
8. What is the net present value (NPV) of the following cash flows at a discount rate of 9%?
A. $122,431.81
B. $200,000
C. $155,950.68
D. None of the above
NPV = -250,000 + (100,000/1.09) + (150,000/(1.09^2)) + (200,000/(1.09^3))
NPV = 122,431.81
9. The following statements regarding the NPV rule and the rate of return rule are true
except:
A. Accept a project if its NPV > 0
B. Reject a project if the NPV < 0
C. Accept a project if its rate of return > 0
D. Accept a project if its rate of return > opportunity cost of capital
2- 2
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Chapter 02
How to Calculate Present Values Answer Key
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
PV = 100/(1.06^2) = 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
DF2 = 1/(1.12^2) = 0.7972
4. 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
Discount Factor = 1/1.25 = 0.8
5. 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
1 + r = 1/(0.8333) = 1.20; r = 20%
2- 1
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, BUSINESS A 711N9Chap002-_answers
6. 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
1 + r = 250 /200 = 1.25; r = 25%
7. What is the present value of the following cash flow at a discount rate of 9%?
A. $372,431.81
B. $450,000
C. $405,950.68
D. None of the above
PV = (100,000/1.09) + (150,000/(1.09^2)) + 200,000/(1.09^3) = 372,431.81
8. What is the net present value (NPV) of the following cash flows at a discount rate of 9%?
A. $122,431.81
B. $200,000
C. $155,950.68
D. None of the above
NPV = -250,000 + (100,000/1.09) + (150,000/(1.09^2)) + (200,000/(1.09^3))
NPV = 122,431.81
9. The following statements regarding the NPV rule and the rate of return rule are true
except:
A. Accept a project if its NPV > 0
B. Reject a project if the NPV < 0
C. Accept a project if its rate of return > 0
D. Accept a project if its rate of return > opportunity cost of capital
2- 2
This study source was downloaded by 100000832558064 from CourseHero.com on 04 - 0 8-2022 01:08:50 GMT -
05:00
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