Test Bank for Corporate Finance 11th Edition Ross, Westerfield, Jaffe.

CorporatelFinance,l12el(Ross)
Chapterl4l DiscountedlCashlFlowlValuation

1) Thelnetlpresentlvalueloflalprojectlislequalltolthe:
A) presentlvalueloflthelfuturelcashlflows.
B) presentlvalueloflthelfuturelcashlflowslminuslthelinitiallcost.
C) futurelvalueloflthelfuturelcashlflowslminuslthelinitiallcost.
D) futurelvalueloflthelfuturelcashlflowslminuslthelpresentlvalueloflthelinitiallcost.
E) sumloflthelproject'slanticipatedlcashlinflows.

Answer:lBlDifficu
lty:l1lEasy
Section:l4.1lValuation:lThelOne-
PeriodlCaselTopic:l Netlpresentlvalue
Bloom's:l UnderstandlAACSB
:l ReflectivelThinking
Accessibility:l KeyboardlNavigation

2) Whichlonelofltheselstatementslislcorrectlconcerningltheltimelvalueloflmoney?
A) Increasinglthelinitiallcostloflalprojectlincreaseslthelproject'slNPV.
B) Increasingltheldiscountlrate,lincreaseslthelPVloflalproject.
C) IncreasinglthelFVldecreaseslthelPV.
D) DecreasinglthelPVldecreaseslthelFV.
E) DecreasingltheldiscountlratelincreaseslthelFV.

Answer:lDlDiffic
ulty:l1lEasy
Section:l4.1lValuation:lThelOne-
PeriodlCaselTopic:l Netlpresentlvalue
Bloom's:l UnderstandlAACSB
:l ReflectivelThinking
Accessibility:l KeyboardlNavigation

,3) Atlaldiscountlratelofl5lpercent,lwhichloneloflthelfollowinglislthelcorrectlformulalforlcom
putinglthelPVlofl$1ltolbelreceivedlonelyearlfromltoday?
A)l$1/1.05
B)l$1
C)l$1l×l1.05
D)l$1l×l1.052
E)l$1/1.052

Answer:lAlDiffic
ulty:l1lEasy
Section:l4.1lValuation:lThelOne-
PeriodlCaselTopic:lPresentlvaluel-
lsinglelcashlflowlBloom's: l Understand

AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation

4) Whatleffectlwilllanlincreaselinltheldiscountlratelhavelonlthelpresentlvalueloflalprojectlthatlhaslanlinit
iallcashloutflowlfollowedlbylfivel yearsloflcashlinflows?
A) TherelwilllbelnoleffectlonlthelPV.
B) ThelPVlwilllchangelbutltheldirectionloflthelchangelislunknown.
C) ThelPVlwilllremainlthelsamelasltheltimingloflthelcashlflowslmustlchangelalso.
D) ThelPVlwilllincrease.
E) ThelPVlwillldecrease.

Answer:lElDifficu
lty:l1lEasy
Section:l 4.2lThelMultiperiodlCase
Topic:l Presentlvaluel-
lmultiplelcashlflowslBloom's:l Understand

AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation

,5) Yoularelconsideringltwolprojects.lProjectlAlhaslprojectedlcashlflowslofl$6,500,l$4,500,land
$2,500lforlthelnextlthreelyears,lrespectively.lProjectlBlhaslprojectedlcashlflowslofl$2,500,
$4,500,landl$6,500lforlthelnextlthreelyears,lrespectively.lAssuminglbothlprojectslhavelthelsameliniti
allcost,lyoulknowlthat:
A) therelarelnolconditionslunderlwhichlthelprojectslcanlhavelequallvalues.
B) ProjectlBlhaslalhigherlnetlpresentlvaluelthanlProjectlA.
C) ProjectlAlislmorelvaluablelthanlProjectlBlgivenlalpositiveldiscountlrate.
D) bothlprojectslofferlthelsamelrateloflreturn.
E) bothlprojectslhavelequallnetlpresentlvalueslatlanyldiscountlrate.

Answer:lClDifficu
lty:l1lEasy
Section:l 4.2lThelMultiperiodlCase
Topic:l Presentlvaluel-
lmultiplelcashlflowslBloom's:l Understand

AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation

6) Anlinterestlratelthatlislcompoundedlmonthly,lbutlislexpressedlasliflthelratelwerelcompoundedlannu
ally,lislcalledlthe rate.
A) statedlinterest
B) compoundlinterest
C) effectivelannual
D) periodiclinterest
E) dailylinterest

Answer:lClDifficu
lty:l1lEasy
Section:l 4.3lCompoundinglPeriods
Topic:l Annual,lholdinglperiod,landleffectivelrateslB
loom's:l Remember
AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation

, 7) Thelinterestlratelchargedlperlperiodlmultipliedlbylthelnumberloflperiodslperlyearlislcalledlthe
l rate.
A) effectivelannual
B) annuallpercentage
C) periodiclinterest
D) compoundlinterest
E) dailylinterest

Answer:lBlDifficu
lty:l1lEasy
Section:l 4.3lCompoundinglPeriods
Topic:l Annual,lholdinglperiod,landleffectivelrateslB
loom's:l Remember
AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation

8) Thelannuallpercentagelrate:
A) considerslinterestlonlinterest.
B) islthelactuallcostloflalloanlwithlmonthlylpayments.
C) islhigherlthanltheleffectivelannuallratelwhenlinterestlislcompoundedlquarterly.
D) islthelinterestlratelchargedlperlperiodldividedlbyl(1l+ln),lwhenlnlislthelnumberloflperiodslperlyear.
E) equalsltheleffectivelannuallratelwhenlthelinterestlonlanlaccountlisldesignatedlaslsimplelinter
est.

Answer:lElDifficu
lty:l1lEasy
Section:l 4.3lCompoundinglPeriods
Topic:l Annual,lholdinglperiod,landleffectivelrateslB
loom's:l Understand
AACSB:lReflectivelThinkinglAccess
ibility:l KeyboardlNavigation