To calculate the present value of any future amount

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Reference no: EM132011643

1. To calculate the present value of any future amount, you can use which of the following tables?

Present value of $1 received in n periods

Future value of $1 received in n periods

Present value of an annuity

Future value of an annuity

2. Capital budgeting decisions involve both outflows of cash at one or more times and inflows of cash at other times.

True

False

3. To calculate the present value of an annuity, divide the amount to be received each year by the present value factor.

True

False

4. In making a capital budgeting decision, one needs to compare cash flows in terms of their amounts and when they occur. One way to do so is to determine the

Future value

Present value

Average cash outflows

Opportunity costs

5. If the net present value of a project is greater than or equal to zero, the project has achieved the required rate of return and should be accepted.

True

False

6. Before you can calculate the present value of a cash flow, you must

Identify the amount and timing of each cash flow

Determine the appropriate discount rate

Both identify the amount and timing of each cash flow and determine the appropriate discount rate

Neither identify the amount and timing of each cash flow nor determine the appropriate discount rate

7. When the annual cash flows are uneven, you must use the annuity table method to calculate the internal rate of return.

True

False

8. Once you have determined the net present value of a project, if the net present value is less than zero, the project should be

Accepted

Rejected

Before making a decision, calculate the future value of the project

Before making a decision, recalculate the present value using another discount rate

Internal rate of return is less than the discount rate

Internal rate of return is equal to the discount rate

Internal rate of return is greater than the discount rate

When the internal rate of return is greater than zero

9. In which of the following situations should a project not be accepted?

Internal rate of return is less than the discount rate

Internal rate of return is equal to the discount rate

Internal rate of return is greater than the discount rate

When the internal rate of return is greater than zero

10. Andrea Kris is opening a small flower shop that will focus primarily on delivery, but will provide a small showroom for walk-in customers. A local florist is retiring and selling her small flower shop to Andrea for $162,500. The shop has a remaining life of 20 years. Andrea expects to have revenues of $81,250 per year and pay approximately 60% of revenues in operating costs. What is the accounting rate of return for Andrea’s flower shop?

15%

20%

45%

25%

11. The accounting rate of return differs from the internal rate of return and the payback period in that the accounting rate of return does not focus on cash flows.

True

False

12. Andrea Kris is opening a small flower shop that will focus primarily on delivery, but will provide a small showroom for walk-in customers. A local florist is retiring and selling her small flower shop to Andrea for $162,500. The shop has a remaining life of 20 years. Andrea expects to have revenues of $81,250 per year and pay approximately 60% of revenues in operating costs. What is the payback period for Andrea’s flower shop?

5 years

2 years

3.33 years

6.66 years

13. The return generated by an investment based on its operating income is the

Internal rate of return.

Discounted rate of return.

Accounting rate of return.

Payback period.

14. The accounting rate of return is also known as the unadjusted rate of return.

True

False

Reference no: EM132011643

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