Question 1

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 20%, Nashbar Bicycle's total investment would be

Accepted Answer

The answer of Refer to the data provided in Table...

Question 2

When a Democrat is elected as president, business leaders expect that the corporate profits tax will be increased. Most likely, this will cause business firms, ceteris paribus, to

Accepted Answer

Business leaders would expect lower benefits from investment due to the increased corporate profit tax, which would make investment less attractive. Therefore, they are likely to decrease investment.

Question 3

When making the decision to invest, the evaluation of the expected flow of future productive services that the investment project being considered will yield is an important consideration. This statement is accurate for

Accepted Answer

The evaluation of the expected flow of future productive services is relevant for all entities, including firms, households, and governments, when considering an investment project. All three entities have the potential to invest in projects that will yield productive services in the future, making this evaluation an important consideration for all.

Question 4

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 20%, Nashbar Bicycle should

Accepted Answer

The correct choice is to fund only the purchase of new tablet computers for its sales staff because its expected rate of return (22%) is higher than the interest rate (20%), making it the only project with a positive net return.

Question 5

Households receive bonds when they loan money directly to a firm.

Accepted Answer

The answer of Households receive bonds when they loan money...

Question 6

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 28%, Nashbar Bicycle should

Accepted Answer

The expected rate of return for all projects is less than the interest rate of 28%, making them financially unviable.

Question 7

You work as a forecaster for the major producer of digital cameras. You know that there is a strong positive relationship between the demand for digital cameras and the birth of a first child. A report has just been issued predicting that the birthrate is expected to decrease steadily over the next 10 years. You should recommend which of the following courses of action to the firm?

Accepted Answer

Given the strong positive relationship between the demand for digital cameras and the birth of a first child, and the prediction of a steady decrease in the birthrate, it is prudent to start decreasing investment now to align production with the anticipated decrease in demand, thus avoiding excess inventories.

Question 8

Dividends are payments made to bondholders.

Accepted Answer

Dividends are payments made to shareholders, while bondholders receive interest payments or coupon payments.

Question 9

The expected cost of an investment

Accepted Answer

The expected cost of an investment depends on the market interest rate. This is because the market interest rate represents the opportunity cost of investing in a particular project or asset. When a firm invests in a project, it is foregoing the opportunity to invest in another project or asset that would have generated a return based on the prevailing market interest rate. Therefore, the expected cost of an investment is the return that the firm must generate to compensate for the opportunity cost of not investing in an alternative project or asset.

Question 10

Payments for capital include investment and profit.

Accepted Answer

Payments for capital typically include the return on investment, such as interest or dividends, not the investment itself. Profit is a form of return on investment.

Question 11

Most real estate in the United States is financed by venture capital funds.

Accepted Answer

Most real estate in the United States is financed through traditional mortgages, loans from banks or other financial institutions, or through private equity firms, not venture capital funds.

Question 12

Which of the following statements of the expected flow of future benefits is false?

Accepted Answer

C is false because if future benefits are overestimated, the firm is more likely to overinvest in capital, not underinvest.

Question 13

A firm's net income is its revenue minus its costs of production.

Accepted Answer

Net income is calculated by subtracting all of a business's expenses, including its costs of production, from its total revenue.

Question 14

A firm can invest in one of two projects-the purchase of new delivery vans or the training of its sales staff in the use of new sales techniques. Both projects cost the same amount of money. The purchase of new delivery vans is expected to reduce costs by $5,000 each year for 10 years. The training of the sales staff in the use of a new sales technique is expected to increase revenues by $5,000 each year for 5 years. Which of the following is true?

Accepted Answer

The purchase of delivery vans has a longer duration of cost reduction (10 years) compared to the revenue increase from sales staff training (5 years), making it likely to have a higher expected rate of return over time.

Question 15

Polar Water, a company that delivers bottled water, is considering three investment opportunities. The expected returns for each of the projects are as follows: buying a new delivery van, 20%; computer training for its office staff, 15%; and defensive driving training for its drivers, 8%. If the current interest rate is 10%, the firm should invest in

Accepted Answer

The firm should invest in projects whose expected return is greater than the interest rate. Therefore, the firm should invest in the purchase of a new delivery van with 20% expected return and computer training for its office staff with 15% expected return. The defensive driving training for its drivers has a lower expected return than the interest rate, so it would not be a wise investment. The average of the returns is not relevant in this case.

Question 16

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 9%, Nashbar Bicycle's total investment would be

Accepted Answer

The answer of Refer to the data provided in Table...

Question 17

Owning a corporate bond entitles the bondholder to a portion of the firm's profits.

Accepted Answer

Owning a corporate bond does not entitle the bondholder to a portion of the firm's profits. Instead, the bondholder is entitled to receive regular interest payments and, upon maturity, the return of their principal investment.

Question 18

You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food store. You will earn an economic profit if the return on your investment is

Accepted Answer

To earn an economic profit, the return on the investment must be greater than the interest rate. Therefore, the answer is A, as the return needs to be greater than 5%.

Question 19

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 25%, Nashbar Bicycle's total investment would be

Accepted Answer

If the interest rate is 25%, none of the projects listed in Table 11.1 have an expected rate of return that exceeds or matches this interest rate. Therefore, it would not be financially prudent to invest in any of these projects under these conditions, leading to a total investment of $0.

Question 20

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 
-Refer to Table 11.1. If the interest rate is 5%, Nashbar Bicycle should

Accepted Answer

Each project has an expected rate of return higher than the interest rate of 5%, making them all financially viable and beneficial to fund.

Quiz 11: Input Demand: The Capital Market and the Investment Decision

Refer to the data provided in Table 11.1 below to answer the following question(s) . Table 11.1 -Refer to Table 11.1. If the interest rate is 20%, Nashbar Bicycle's total investment would be

When a Democrat is elected as president, business leaders expect that the corporate profits tax will be increased. Most likely, this will cause business firms, ceteris paribus, to

When making the decision to invest, the evaluation of the expected flow of future productive services that the investment project being considered will yield is an important consideration. This statement is accurate for

Refer to the data provided in Table 11.1 below to answer the following question(s) . Table 11.1 -Refer to Table 11.1. If the interest rate is 20%, Nashbar Bicycle should

Households receive bonds when they loan money directly to a firm.

Refer to the data provided in Table 11.1 below to answer the following question(s) . Table 11.1 -Refer to Table 11.1. If the interest rate is 28%, Nashbar Bicycle should