CorporatepFinance,p12ep(Ross)
Chapterp4p p DiscountedpCashpFlowpValuation
1) Thepnetppresentpvaluepofpapprojectpispequalptopthe:
A) presentpvaluepofpthepfuturepcashpflows.
B) presentpvaluepofpthepfuturepcashpflowspminuspthepinitialpcost.
C) futurepvaluepofpthepfuturepcashpflowspminuspthepinitialpcost.
D) futurepvaluepofpthepfuturepcashpflowspminusptheppresentpvaluepofpthepinitialpcost.
E) sumpofpthepproject'spanticipatedpcashpinflows.
Answer:p BpDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Netppresentpvalue
Bloom's:p UnderstandpAACSB
:p ReflectivepThinking
Accessibility:p KeyboardpNavigation
2) Whichponepofpthesepstatementspispcorrectpconcerningptheptimepvaluepofpmoney?
A) Increasingpthepinitialpcostpofpapprojectpincreasespthepproject'spNPV.
B) Increasingpthepdiscountprate,pincreasespthepPVpofpapproject.
C) IncreasingpthepFVpdecreasespthepPV.
D) DecreasingpthepPVpdecreasespthepFV.
E) DecreasingpthepdiscountpratepincreasespthepFV.
Answer:p DpDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Netppresentpvalue
Bloom's:p UnderstandpAACSB
:p ReflectivepThinking
Accessibility:p KeyboardpNavigation
,3) Atpapdiscountpratepofp5ppercent,pwhichponepofpthepfollowingpispthepcorrectpformulapforpc
omputingpthepPVpofp$1ptopbepreceivedponepyearpfromptoday?
A) $1/1.05
B) $1
C) $1p×p1.05
D) $1p×p1.052
E) $1/1.052
Answer:p ApDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Presentpvaluep-
psinglepcashpflowpBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
4) Whatpeffectpwillpanpincreasepinpthepdiscountpratephaveponptheppresentpvaluepofpapprojectpthatphaspa
npinitialpcashpoutflowpfollowedpbypfivepyearspofpcashpinflows?
A) TherepwillpbepnopeffectponpthepPV.
B) ThepPVpwillpchangepbutpthepdirectionpofpthepchangepispunknown.
C) ThepPVpwillpremainpthepsamepasptheptimingpofpthepcashpflowspmustpchangepalso.
D) ThepPVpwillpincrease.
E) ThepPVpwillpdecrease.
Answer:p EpDifficulty
:p1pEasy
Section:p 4.2pThepMultiperiodpCase
Topic:p Presentpvaluep-
pmultiplepcashpflowspBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
,5) Youparepconsideringptwopprojects.pProjectpAphaspprojectedpcashpflowspofp$6,500,p$4,500,pand
$2,500pforpthepnextpthreepyears,prespectively.pProjectpBphaspprojectedpcashpflowspofp$2,500,
$4,500,pandp$6,500pforpthepnextpthreepyears,prespectively.pAssumingpbothpprojectsphavepthepsamepini
tialpcost,pyoupknowpthat:
A) thereparepnopconditionspunderpwhichpthepprojectspcanphavepequalpvalues.
B) ProjectpBphaspaphigherpnetppresentpvaluepthanpProjectpA.
C) ProjectpApispmorepvaluablepthanpProjectpBpgivenpappositivepdiscountprate.
D) bothpprojectspofferpthepsamepratepofpreturn.
E) bothpprojectsphavepequalpnetppresentpvaluespatpanypdiscountprate.
Answer:p CpDifficult
y:p1pEasy
Section:p 4.2pThepMultiperiodpCase
Topic:p Presentpvaluep-
pmultiplepcashpflowspBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
6) Anpinterestpratepthatpispcompoundedpmonthly,pbutpispexpressedpaspifpthepratepwerepcompoundedpa
nnually,pispcalledpthep rate.
A) statedpinterest
B) compoundpinterest
C) effectivepannual
D) periodicpinterest
E) dailypinterest
Answer:p CpDifficult
y:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Remember
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
, 7) Thepinterestpratepchargedpperpperiodpmultipliedpbypthepnumberpofpperiodspperpyearpispcalledpthe
rate.
A) effectivepannual
B) annualppercentage
C) periodicpinterest
D) compoundpinterest
E) dailypinterest
Answer:p BpDifficult
y:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Remember
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
8) Thepannualppercentageprate:
A) considerspinterestponpinterest.
B) ispthepactualpcostpofpaploanpwithpmonthlyppayments.
C) isphigherpthanpthepeffectivepannualpratepwhenpinterestpispcompoundedpquarterly.
D) ispthepinterestpratepchargedpperpperiodpdividedpbyp(1p+pn),pwhenpnpispthepnumberpofpperiodspperpy
ear.
E) equalspthepeffectivepannualpratepwhenpthepinterestponpanpaccountpispdesignatedpaspsimplepi
nterest.
Answer:p EpDifficulty
:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
Chapterp4p p DiscountedpCashpFlowpValuation
1) Thepnetppresentpvaluepofpapprojectpispequalptopthe:
A) presentpvaluepofpthepfuturepcashpflows.
B) presentpvaluepofpthepfuturepcashpflowspminuspthepinitialpcost.
C) futurepvaluepofpthepfuturepcashpflowspminuspthepinitialpcost.
D) futurepvaluepofpthepfuturepcashpflowspminusptheppresentpvaluepofpthepinitialpcost.
E) sumpofpthepproject'spanticipatedpcashpinflows.
Answer:p BpDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Netppresentpvalue
Bloom's:p UnderstandpAACSB
:p ReflectivepThinking
Accessibility:p KeyboardpNavigation
2) Whichponepofpthesepstatementspispcorrectpconcerningptheptimepvaluepofpmoney?
A) Increasingpthepinitialpcostpofpapprojectpincreasespthepproject'spNPV.
B) Increasingpthepdiscountprate,pincreasespthepPVpofpapproject.
C) IncreasingpthepFVpdecreasespthepPV.
D) DecreasingpthepPVpdecreasespthepFV.
E) DecreasingpthepdiscountpratepincreasespthepFV.
Answer:p DpDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Netppresentpvalue
Bloom's:p UnderstandpAACSB
:p ReflectivepThinking
Accessibility:p KeyboardpNavigation
,3) Atpapdiscountpratepofp5ppercent,pwhichponepofpthepfollowingpispthepcorrectpformulapforpc
omputingpthepPVpofp$1ptopbepreceivedponepyearpfromptoday?
A) $1/1.05
B) $1
C) $1p×p1.05
D) $1p×p1.052
E) $1/1.052
Answer:p ApDifficult
y:p1pEasy
Section:p 4.1pValuation:pThepOne-
PeriodpCasepTopic:p Presentpvaluep-
psinglepcashpflowpBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
4) Whatpeffectpwillpanpincreasepinpthepdiscountpratephaveponptheppresentpvaluepofpapprojectpthatphaspa
npinitialpcashpoutflowpfollowedpbypfivepyearspofpcashpinflows?
A) TherepwillpbepnopeffectponpthepPV.
B) ThepPVpwillpchangepbutpthepdirectionpofpthepchangepispunknown.
C) ThepPVpwillpremainpthepsamepasptheptimingpofpthepcashpflowspmustpchangepalso.
D) ThepPVpwillpincrease.
E) ThepPVpwillpdecrease.
Answer:p EpDifficulty
:p1pEasy
Section:p 4.2pThepMultiperiodpCase
Topic:p Presentpvaluep-
pmultiplepcashpflowspBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
,5) Youparepconsideringptwopprojects.pProjectpAphaspprojectedpcashpflowspofp$6,500,p$4,500,pand
$2,500pforpthepnextpthreepyears,prespectively.pProjectpBphaspprojectedpcashpflowspofp$2,500,
$4,500,pandp$6,500pforpthepnextpthreepyears,prespectively.pAssumingpbothpprojectsphavepthepsamepini
tialpcost,pyoupknowpthat:
A) thereparepnopconditionspunderpwhichpthepprojectspcanphavepequalpvalues.
B) ProjectpBphaspaphigherpnetppresentpvaluepthanpProjectpA.
C) ProjectpApispmorepvaluablepthanpProjectpBpgivenpappositivepdiscountprate.
D) bothpprojectspofferpthepsamepratepofpreturn.
E) bothpprojectsphavepequalpnetppresentpvaluespatpanypdiscountprate.
Answer:p CpDifficult
y:p1pEasy
Section:p 4.2pThepMultiperiodpCase
Topic:p Presentpvaluep-
pmultiplepcashpflowspBloom's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
6) Anpinterestpratepthatpispcompoundedpmonthly,pbutpispexpressedpaspifpthepratepwerepcompoundedpa
nnually,pispcalledpthep rate.
A) statedpinterest
B) compoundpinterest
C) effectivepannual
D) periodicpinterest
E) dailypinterest
Answer:p CpDifficult
y:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Remember
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
, 7) Thepinterestpratepchargedpperpperiodpmultipliedpbypthepnumberpofpperiodspperpyearpispcalledpthe
rate.
A) effectivepannual
B) annualppercentage
C) periodicpinterest
D) compoundpinterest
E) dailypinterest
Answer:p BpDifficult
y:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Remember
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
8) Thepannualppercentageprate:
A) considerspinterestponpinterest.
B) ispthepactualpcostpofpaploanpwithpmonthlyppayments.
C) isphigherpthanpthepeffectivepannualpratepwhenpinterestpispcompoundedpquarterly.
D) ispthepinterestpratepchargedpperpperiodpdividedpbyp(1p+pn),pwhenpnpispthepnumberpofpperiodspperpy
ear.
E) equalspthepeffectivepannualpratepwhenpthepinterestponpanpaccountpispdesignatedpaspsimplepi
nterest.
Answer:p EpDifficulty
:p1pEasy
Section:p 4.3pCompoundingpPeriods
Topic:p Annual,pholdingpperiod,pandpeffectivepratespBloo
m's:p Understand
AACSB:p ReflectivepThinkingpAccess
ibility:p KeyboardpNavigation
