Question 1

When cash is paid out, it is considered ____________________ cash flow.

Accepted Answer

The answer of When cash is paid out, it is...

Question 2

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.
-Natalie has used the IRR function in the past and received a #NUM error. What does this error mean?

Accepted Answer

The #NUM error when using the IRR function typically indicates that after 20 iterations, Excel could not find a result that works with the provided cash flows, suggesting the calculation did not converge to a solution within the set iteration limit.

Question 3

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.
-Phil enters the tax rate of 35% in the workbook as a range named Taxrate without first entering the value itself in the workbook. In Excel, you can give a value a range name without actually entering the value in a specific cell. To do so, you use the ____ dialog box.

Accepted Answer

The dialog box for giving a value a range name in Excel is called "New Name."

Question 4

The payback year is the year in which the cumulative total cash flow is greater than or equal to ____.

Accepted Answer

The payback year is the year in which the project generates enough cash flow to recover its initial investment. Therefore, the cumulative total cash flow needs to be greater than or equal to zero, which is the point at which the project has paid for itself. The other options (B, C, and D) are not correct because payback is not related to the value of the business, the amount of the last payment, or the original loan amount.

Question 5

Payments that are inflows should be ____________________, and payments that are outflows should be negative.

Accepted Answer

The answer of Payments that are inflows should be ____________________,...

Question 6

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.
-Phil now must add back the depreciation because this is not actually a cash flow. Cell C15 contains the depreciable amount represented as a negative value. In this case, Phil enters the formula ____ in cell C21 and copies it across the row.

Accepted Answer

The correct formula is =-C15 because it converts the negative depreciable amount in cell C15 to a positive value, reflecting the addition back of depreciation in the cash flow.

Question 7

Interest that is paid solely on the amount of the original principal value is called ____________________ interest.

Accepted Answer

The answer of Interest that is paid solely on the...

Question 8

Which formula from the list below can be copied across a row to create a row of cumulative totals?

Accepted Answer

The formula =SUM($C24:C24)>0 can be copied across a row to create a row of cumulative totals because it uses a mixed reference. The dollar sign before the column letter C ($C24) fixes the starting point of the sum range, while the end of the range (C24) is relative, allowing it to expand as the formula is copied across. This creates a cumulative total from the starting cell ($C24) to the current cell in the row. The other options either contain syntax errors or do not provide the functionality for creating cumulative totals.

Question 9

ROI is the ____, excluding the initial investment, divided by the investment value.

Accepted Answer

ROI (return on investment) is calculated by taking the sum of cash flows generated by an investment, subtracting the initial investment, and then dividing by the initial investment. This formula does not involve market value, principal payments, or asset value minus depreciation.

Question 10

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.
-Phil also calculates the projected income after taxes in cell C19 using the formula ____.

Accepted Answer

Phil calculates the projected income after taxes in cell C19 using the formula =C18+C16. This formula adds the projected income before taxes in cell C18 to the tax savings in cell C16 to arrive at the projected income after taxes.

Question 11

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.
-Natalie knows the syntax of the IRR function is as follows: IRR(values,[guess]). The values argument is a list of positive and negative cash flows. For this function to work, ____.

Accepted Answer

The IRR function requires at least one positive and one negative cash flow in the list of values for it to work properly. It is not necessary for all cash flows to be positive or negative. Therefore, option C is the best choice.

Question 12

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.
-To determine the projected cash flow, Phil must now total the following: taxable income, depreciation added back to the cash flow, and principal payments deducted from the cash flow (already a negative value). Phil enters the following formula in cell C24 and copies it across the row: ____.

Accepted Answer

The formula to determine the projected cash flow is to sum the taxable income in cell C19 with the value of depreciation added back to the cash flow in cell C21 and the principal payments deducted from the cash flow (already a negative value) in cell C22. Therefore, the correct formula to enter in cell C24 is =SUM(C19,C21,C22).

Question 13

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.
-Phil also assumes that the actual taxes owed will be rounded to the nearest dollar. Using this information, he enters the formula ____ in cell C18 to calculate the taxes. This is the area indicated by #1 in the figure above.

Accepted Answer

The answer of  
Phil has put together the worksheet...

Question 14

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.
-In college, Natalie had to calculate IRR manually so that she would have a good understanding of the way it worked. To do that, she needed to guess an IRR value and substitute it as the ____ in the NPV formula.

Accepted Answer

In order to manually calculate IRR, the user needs to guess an IRR value and substitute it as the discount rate in the NPV formula. The user will then calculate the resulting NPV and adjust their guess accordingly until the NPV equals zero, at which point the discount rate used in the formula is the IRR. Therefore, the answer is choice A) discount rate.

Question 15

The payback period is the time it will take to ____.

Accepted Answer

The payback period refers to the amount of time it takes for a business to recoup its investment in a project or asset, through the earnings or profits generated by that investment. It does not directly relate to paying back a loan in the traditional sense, nor does it pertain to the depreciation of an item.

Question 16

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.
-Natalie's company has been going through a rocky time. Her boss asks her what would be an acceptable cash flow interval for calculating IRR. What should be her answer?

Accepted Answer

The answer of  
Natalie is working on calculating the...

Question 17

The PMT function finds the value of the payment per period, assuming that there are constant payments and a constant ____________________ for the duration of the loan.

Accepted Answer

The answer of The PMT function finds the value of...

Question 18

Before constructing a formula with a financial function, it is a good idea to determine the timeline of the financial ____________________.

Accepted Answer

The answer of Before constructing a formula with a financial...

Question 19

Excel provides a method to automatically calculate the payback period, but it is a somewhat complex process that involves using the ____ reference function and calculating a cumulative total.

Accepted Answer

The MATCH function is used in Excel to find the position of a value in a range, which can be utilized in calculating the payback period by identifying the point at which the cumulative cash flow becomes positive.

Question 20

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.
-Applying the IRR function to the worksheet in cell B39, Natalie writes the formula ____.

Accepted Answer

In the figure, the cash flows for the project are in row 27, so Natalie should apply the IRR function to that row. Therefore, the correct formula is =IRR(B27:G27).

Quiz 6: Evaluating the Financial Impact of Loans and Investments