Deck 6: Evaluating the Financial Impact of Loans and Investments

Question 1

Chart data series ranges include both sheet names and absolute cell references.

Answer 1

True

Question 2

=NPER(rate,pmt,pv,fv,type) solves for the interest rate per period.

Answer 2

False

Question 3

Financial institutions advertise their loan interest rates in what is referred to as an annual loan plan, or ALP.

Answer 3

False

Question 4

A down payment is money required from the lender toward the purchase of an asset.

Question 5

The present value is the amount, or initial outlay, at the beginning of the transaction.

Question 6

ROI is the sum of the cash flows, including the initial investment, divided by the investment value.

Question 7

Money is usually not the only component in a business decision.

Question 8

Depreciation must be added to the cash flow in each year to calculate taxes for that year, but then must be subtracted because it is not actually a cash flow in that year.

Question 9

Corporate taxes allow companies to allocate portions of the capital investment as an expense, thereby reducing the amount of taxes owed.

Question 10

When cash is received, it is considered negative cash flow.

Question 11

The syntax of the FV function is =FV(rate,nper,pmt,[pv],[type]).

Question 12

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

Question 13

Principal payments represent negative cash flows.

Question 14

The fv argument is the value at the end of the financial transaction.

Question 15

The net present value is an interest rate chosen to reflect not only the time value of money, but the desired returns the company expects for the level of risk being taken.

Question 16

Most financial instruments, such as loans and CDs, use compound interest.

Question 17

$10,000 compounded 1 time at 4% per period is different from $10,000 compounded 4 times at 1% per period; the latter results in a higher value.

Question 18

In Excel 2013, using the Define Name button and then typing a name in the Name field allows the user to specify a named range scope.

Question 19

When you borrow money from a bank to make a purchase, you must pay back the amount borrowed plus an additional amount known as principal.

Question 20

The IRR method calculates the rate at which discounted cash flows in and out are equal, essentially where the NPV is $0.

Question 21

The variable-declining balance method returns the depreciation of an asset for a specified period. _________________________

Question 22

____ is like a user fee because you are paying to "use" the bank's money.

A) Interest
B) Principal
C) Cash flow
D) Depreciation

Question 23

____ is the equivalent of a yearly simple interest rate, taking into account compounding.

A) Annual percentage yield
B) Annual cash flow
C) Annual compound interest
D) Annual simple interest

Question 24

The ____ is the value of the loan or investment.

A) principal
B) interest
C) cash flow
D) depreciation

Question 25

The payback period is the value of the loan or investment. _________________________

Question 26

Bottom line depreciation basically allocates the value of an asset evenly throughout the life of the asset. _________________________

Question 27

A(n) balloon payment is additional money owed at the end of a loan.
_________________________

Question 28

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

A) simple
B) complex
C) compound
D) principal

Question 29

NPV enables you to see the current worth of the projected cash flows, which helps you to determine the profitability of the venture. _________________________

Question 30

The syntax of the FV function is =FV(rate,nper,pmt,[fv],[type]). _________________________

Question 31

The rate per period is the monthly rate divided by the number of periods per year. _________________________

Question 32

When calculating taxes in the United States, a company can subtract from income only the principal portion of a loan payment. _________________________

Question 33

The values argument in the IRR function is a list of positive and negative cash flows. _________________________

Question 34

=CIPMT(rate,nper,pv,start_period,end_period,type) returns the cumulative interest paid on a loan between start_period and end_period. _________________________

Question 35

PV solves for the final value, which is the amount in or out at the end of the financial transaction. _________________________

Question 36

The NPV function in Excel takes the cash flow from year 0, which is referred to as value0, and discounts the value by one year. _________________________

Question 37

Adding interest earned each period to the principal for purposes of computing interest for the next period is known as ____ interest.

A) compound
B) simple
C) complex
D) principal

Question 38

To calculate an interest rate, you can use the INTEREST function. _________________________

Question 39

The IPMT function calculates the value of the interest payment for a specified period. _________________________

Question 40

Range names must start with a letter, an underscore, or a(n) backslash. _________________________

Question 41

In a PMT function, the ____ argument is the value at the end of the financial transaction.

A) rate
B) nper
C) fv
D) type

Question 42

Cash amounts that are either received or paid out during the course of the financial transaction are often referred to as ____.

A) cash flow
B) cash movement
C) in and out money
D) business money

Question 43

In a PMT function, the ____ argument designates when payments are made.

A) rate
B) nper
C) fv
D) type

Question 44

If you are calculating payments to a bank (a negative cash flow), your formula requires a positive ____.

A) present value (pv)
B) future value (fv)
C) present value (pv) and future value (fv)
D) any of the above

Question 45

A bank account would have an fv equal to the ____ plus any accrued interest, plus or minus any payments into or out of the account.

A) pv
B) rate
C) pmt
D) fv

Question 46

In a PMT function, the ____ argument is the number of compounding periods.

A) rate
B) nper
C) pv
D) type

Question 47

The APR reflects the ____ being paid on the actual amount borrowed.

A) principal
B) interest
C) cash flow
D) depreciation

Question 48

In a PMT function, the ____ argument is the original principal value at the beginning of the financial transaction.

A) rate
B) nper
C) pv
D) type

Question 49

____ include(s) points, loan application fees, or any other fee that the borrower must pay up front.

A) Mortgage loans
B) Mortgage interest
C) Upfront interest
D) none of the above

Question 50

A loan that is completely paid off would have an fv of ____.

A) 0
B) the original amount of the loan
C) the monthly payment
D) none of the above

Question 51

When cash is received, it is considered to be ____.

A) positive cash flow
B) negative cash flow
C) in money
D) positive cash source

Question 52

In financial functions, the default transaction (type ____) indicates payments are made at the end of each period.

A) 0
B) -
C) 1
D) end

Question 53

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

A) PAY
B) CASH
C) PAYMENT
D) PMT

Question 54

In a PMT function, the ____ argument is the interest rate per compounding period.

A) rate
B) nper
C) pv
D) type

Question 55

In financial functions, type ____ indicates payments are made at the beginning of each period.

A) 0
B) -
C) 1
D) start

Question 56

When cash is paid out, it is considered to be ____.

A) positive cash flow
B) negative cash flow
C) out money
D) bad cash

Question 57

If you are calculating a positive future value (money being withdrawn from a bank, which is a positive cash flow), your formula requires a negative ____.

A) present value (pv)
B) payment (pmt)
C) present value (pv) and payment (pmt)
D) any of the above

Question 58

When used in the PMT function, the comma in 1,000 is interpreted as ____.

A) the beginning of a new argument
B) the end of a new argument
C) part of the number
D) none of the above

Question 59

The formula =PMT(0.03/12,12*3,15000,-2000) includes a ____.

A) balloon payment
B) depreciation factor
C) down payment
D) none of the above

Question 60

A house that costs $200,000 and requires a 10% down payment would have an original loan value (pv) of ____.

A) $180,000
B) $190,000
C) $210,000
D) $220,000

Question 61

Depreciation needs to be _____ the cash flow in each year to calculate taxes for that year.

A) added to
B) subtracted from
C) either a or b
D) neither a nor b

Question 62

Depreciation is the process by which a company spreads the ____ of an asset over its useful life.

A) value
B) expense
C) both a and b
D) neither a nor b

Question 63

The ____ of a loan is NOT directly tax deductible.

A) principal payment
B) interest
C) both a and b
D) neither a nor b

Question 64

In the SLN function, the _____ argument is the initial cost of the asset.

A) cost
B) price
C) value
D) pv

Question 65

____ returns the cumulative interest paid on a loan between start_period and end_period.

A) CUMIPMT
B) CUMPMT
C) IPMTCUM
D) CUMINT

Question 66

Taxes are calculated based on _____ income, which excludes certain elements that are cash flows and includes other non-cash flow items.

A) regular
B) taxable
C) standard
D) itemized

Question 67

The depreciation method that computes depreciation at an accelerated rate with depreciation being highest in the first period and decreasing in successive periods is ____.

A) variable-declining balance
B) fixed-declining balance
C) sum of the years digits
D) double-declining balance

Question 68

In the function =IPMT(B$3/B$5,A11,B$4*B$5,B$2,B$6,0), the entry "B$6" represents the ____.

A) rate
B) per
C) pv
D) fv

Question 69

In the SLN function, the _____ argument is the number of periods over which the asset is depreciated.

A) periods
B) life
C) number
D) sell

Question 70

In the SLN function, the _____ argument is the value at the end of depreciation.

A) end
B) life
C) salvage
D) sell

Question 71

The PPMT function calculates the value of the ____ for a specified period.

A) principal payment
B) interest payment
C) either a or b
D) neither a nor b

Question 72

The ____ function calculates the value of the interest payment for a specified period.

A) PPMT
B) IPMT
C) INMT
D) RATE

Question 73

A standard method of detailing a loan transaction is to set up what is known as a(n) ____.

A) amortization table
B) mortgage table
C) depreciation table
D) cash flow table

Question 74

To account for a down payment, adjust the ____ of the loan by subtracting it from the loan amount.

A) present value (pv)
B) future value (fv)
C) rate
D) type

Question 75

In the function =IPMT(B$3/B$5,A11,B$4*B$5,B$2,B$6,0), the only argument that will vary when copied down a column will be the ____.

A) nper
B) per
C) pv
D) fv

Question 76

After the ____ and depreciation have been deducted, taxes can be calculated.

A) interest expense
B) assets
C) liabilities
D) all of the above

Question 77

Named ranges can be named and then specified as either a workbook scope or to a specific ____.

A) worksheet
B) table
C) chart
D) file

Question 78

____ returns the cumulative principal paid on a loan between start_period and end_period.

A) CUMPRINC
B) ICUMPR
C) PRINCUM
D) CUMPRI

Question 79

In the PPMT function, the per-argument periods begin at 1 and end at the last payment period, which equals ____.

A) nper
B) fv
C) pv
D) rate

Question 80

____ depreciation basically allocates the value of an asset evenly throughout the life of the asset.

A) Complex
B) Compound
C) Straight line
D) Even