FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 2: How to Calculate Present Values

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

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

E) C) and D)
F) None of the above

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

If the present value annuity factor for 10 years at 10% interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

A) 6.1446
B) 7.38
C) 6.759
D) None of the above

E) None of the above
F) All of the above

Correct Answer

verified

Show Answer

Question 23

True/False

Review LaterAdd Note

In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r > g.

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for twenty equal annual payments, what is the amount of each payment?

You would like to have enough money saved to receive $80,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments start one year from the date of your retirement. The interest rate is 8%) ?

What is the net present value (NPV) of the following cash flows at a discount rate of 9%? $\begin{array}{cccc} \underline{ \text { t=0} } & \underline{ \text { t=1} } & \underline{ \text { t=2} } & \underline{ \text { t=3} } \\-250,000&100,000&150,000&200,000\end{array}$

You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments starts on the day of retirement. The interest rate is 8%) ?

A perpetuity is defined as:

If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years?

Briefly explain the concept of risk.

State the "rate of return rule."

The managers of a firm can maximize stockholder wealth by:

If the five-year present value annuity factor is 3.60478 and four-year present value annuity factor is 3.03735, what is the present value at the $1 received at the end of five years?

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%?

Which of the following is generally considered an example of a perpetuity:

The rate of return, discount rate, hurdle rate or opportunity cost of capital all means the same.

"Accept investments that have positive net present values" is called the net present value rule.

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:

If the present value of $1.00 received n years from today at an interest rate of r is 0.621, then what is the future value of $1.00 invested today at an interest rate of r% for n years?

John House has taken a 20-year, $250,000 mortgage on his house at an interest rate of 6% per year. What is the value of the mortgage after the payment of the fifth annual installment?