Question 1

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:
A) $80,000
B) $125,000
C) $100,000
D) None of the above

Accepted Answer

Using the formula for present value, PV = FV / (1 + r)n, we can calculate the present value as: 
PV = 100,000 / (1 + 0.25)1 = $80,000. Therefore, the best choice is A.

Question 2

If the one-year discount factor is 0.90, what is the present value of $120 to be received one year from today?
A) $100
B) $96
C) $108
D) None of the above

Accepted Answer

The present value is calculated by multiplying the future value by the discount factor. $120 * 0.90 = $108.

Question 3

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%?
A) $176,000
B) $80,000
C) $0 (zero)
D) None of the above

Accepted Answer

C

Question 4

At an interest rate of 10%, which of the following cash flows should you prefer? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of At an interest rate of 10%, which...

Question 5

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?
A) 0.8333
B) 1.20
C) 0.20
D) None of the above

Accepted Answer

The present value of a future payment can be calculated using the formula:

Present Value = Future Value / (1 + Discount Rate)^Time

where the discount rate is the interest rate used to determine the present value of future cash flows, and time is the number of years until the payment is received.

In this case, we are given that the present value of $480 to be paid at the end of one year is $400. Using the formula, we can solve for the discount rate:

$400 = $480 / (1 + Discount Rate)^1

Simplifying the equation, we get:

(1 + Discount Rate)^1 = $480 / $400
(1 + Discount Rate)^1 = 1.2

Taking the square root of both sides, we get:

1 + Discount Rate = 1.0954

Subtracting 1 from both sides, we get:

Discount Rate = 0.0954

Therefore, the one-year discount factor is:

1 / (1 + Discount Rate) = 1 / (1 + 0.0954) = 0.8333

So, the best choice is A.

Question 6

If the present value of $250 expected to be received one year from today is $200, what is the discount rate?
A) 10%
B) 20%
C) 25%
D) None of the above

Accepted Answer

The answer of If the present value of $250 expected...

Question 7

The net present value formula for one period is:
I. NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and
III. NPV = C0/C1
A) I only
B) I and II only
C) III only
D) None of the above

Accepted Answer

The correct formula for net present value (NPV) for one period is:

NPV = C0 + [C1/(1 + r)]

where C0 is the cash inflow in the current period, C1 is the cash inflow in the following period, r is the discount rate, and the formula discounts the cash flows by dividing them by (1 + r).

Option II is also correct because NPV can also be expressed as the present value of the required investment. However, option III is incorrect because it does not include a discount factor and a required rate of return.

Question 8

What is the present value of the following cash flow at a discount rate of 9%? 
A) $372,431.81
B) $450,000
C) $405,950.68
D) None of the above

Accepted Answer

The answer of What is the present value of the...

Question 9

The one-year discount factor at an interest rate of 100% per year is:
A) 1.5
B) 0.5
C) 0.25
D) None of the above

Accepted Answer

The formula for calculating the one-year discount factor is: 1 / (1 + i), where i is the interest rate as a decimal. In this case, i = 1. So, the one-year discount factor is 1 / (1 + 1) = 1/2 = 0.5. Therefore, the correct choice is B.

Question 10

If the interest rate is 12%, what is the 2-year discount factor?
A) 0.7972
B) 0.8929
C) 1.2544
D) None of the above

Accepted Answer

The 2-year discount factor can be calculated using the formula: 1/(1 + r)^n, where r is the interest rate and n is the number of years. Plugging in the values, we get: 1/(1 + 0.12)^2 = 0.7972. Therefore, the answer is choice A.

Question 11

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?
A) 10%
B) 20%
C) 30%
D) None of the above

Accepted Answer

Discount factor = 1 / (1 + discount rate)
0.8333 = 1 / (1 + discount rate)
Discount rate = 20%

Question 12

If the present value of a cash flow generated by an initial investment of $200,000 is
$250,000,
What is the NPV of the project?
A) $250,000
B) $50,000
C) $200,000
D) None of the above

Accepted Answer

The NPV (Net Present Value) of the project is the difference between the present value of cash inflows and the present value of cash outflows. In this case, the initial investment is $200,000 and the present value of cash inflows is $250,000. Therefore, the NPV is $250,000 - $200,000 = $50,000. The correct choice is B.

Question 13

The present value formula for one period cash flow is:
A) PV = C1(1 + r)
B) PV = C1/(1 + r)
C) PV = C1/r
D) None of the above

Accepted Answer

The present value formula for one period cash flow is PV = C1/(1 + r), where PV is the present value, C1 is the cash flow, and r is the discount rate. This formula calculates the current value of an amount that will be received in one period, taking into account the time value of money.

Question 14

The rate of return is also called:
I. discount rate; II) hurdle rate;
III. opportunity cost of capital
A) I only
B) I and II only
C) I, II, and III
D) None of the given ones

Accepted Answer

The rate of return can be referred to as the discount rate, hurdle rate, or opportunity cost of capital, making options I, II, and III all correct.

Question 15

If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate?
A) 15%
B) 20%
C) 25%
D) 50%

Accepted Answer

The present value (PV) formula is PV = FV / (1 + r), where FV is the future value and r is the discount rate. Solving for r: $400 = $600 / (1 + r) gives r = 0.50 or 50%.

Question 16

Present Value is defined as:
A) Future cash flows discounted to the present at an appropriate discount rate
B) Inverse of future cash flows
C) Present cash flow compounded into the future
D) None of the above

Accepted Answer

Present Value is the value of a future cash flow as of today's date, discounted to reflect the time value of money and the risk associated with receiving that cash flow. It is calculated using an appropriate discount rate. Option B and C are not correct definitions of Present Value.

Question 17

One year discount factor at a discount rate of 25% per year is:
A) 1.25
B) 1.0
C) 0.8
D) None of the above

Accepted Answer

The formula for calculating the one year discount factor at a discount rate of 25% per year is (1 + discount rate)^-1. 
Substituting the value of discount rate, we get (1 + 0.25)^-1 = 0.8. Therefore, the correct choice is C.

Question 18

Present value of $121,000 expected to be received one year from today at an interest rate
(discount rate) of 10% per year is:
A) $121,000
B) $100,000
C) $110,000
D) None of the above

Accepted Answer

The present value can be calculated using the formula: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods. Plugging in the values, we get: PV = 121,000 / (1 + 0.1)^1 = $110,000. Therefore, the best choice is C.

Question 19

The present value of $100 expected in two years from today at a discount rate of 6% is:
A) $116.64
B) $108.00
C) $100.00
D) $89.00

Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods. Here, PV = $100 / (1 + 0.06)^2 = $89.00.

Question 20

If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is:
A) $240
B) $160
C) $80
D) $400

Accepted Answer

The present value of the combined cash flow is simply the sum of the present values of X and Y. Therefore, the present value of the combined cash flow is $240 + $160 = $400.

Quiz 2: How to Calculate Present Values

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 one-year discount factor is 0.90, what is the present value of $120 to be received one year from today?

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%?

At an interest rate of 10%, which of the following cash flows should you prefer?

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?

If the present value of $250 expected to be received one year from today is $200, what is the discount rate?

The net present value formula for one period is: I. NPV = C0 + [C1/(1 + r) ]; II) NPV = PV required investment; and III. NPV = C0/C1

What is the present value of the following cash flow at a discount rate of 9%?

The one-year discount factor at an interest rate of 100% per year is:

If the interest rate is 12%, what is the 2-year discount factor?

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, What is the NPV of the project?

The present value formula for one period cash flow is:

The rate of return is also called: I. discount rate; II) hurdle rate; III. opportunity cost of capital

If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate?

Present Value is defined as:

One year discount factor at a discount rate of 25% per year is:

Present value of $121,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is:

The present value of $100 expected in two years from today at a discount rate of 6% is:

If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is: