Question 1

The ________ of R dollars to be paid in t years is the amount you have to put aside now if you want to ensure that you end up with R dollars t years from now.

Accepted Answer

The correct term is "present discounted value," which refers to the amount of money you need to invest now in order to have a specific amount (R dollars) in the future, taking into account the time value of money and interest rates.

Question 2

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Accepted Answer

The answer of ABC Corp. is considering an investment project...

Question 3

Dynaflex Corp. is considering an investment project that costs $900 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Accepted Answer

To determine whether Dynaflex Corp. should undertake the investment, we calculate the Net Present Value (NPV) of the project. The NPV is calculated by discounting the future cash flows back to their present value and subtracting the initial investment. Using a 10% discount rate, the NPV calculation is as follows:NPV = -900 + 350/(1+0.10)^1 + 350/(1+0.10)^2 + 350/(1+0.10)^3NPV = -900 + 318.18 + 289.26 + 263.87 = -28.69Since the NPV is negative, Dynaflex Corp. should forgo the investment.

Question 4

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. At higher interest rates, the present discounted value of profits from the investment

Accepted Answer

At higher interest rates, the present discounted value of profits decreases because the future profits are discounted back to their present value at a higher rate, making them worth less in today's dollars.

Question 5

If the interest rate is 5%, the current market value of $1 to be delivered in one year is

Accepted Answer

The present value of $1 to be delivered in one year at a 5% interest rate is calculated as $1 / (1 + 0.05) = $0.95.

Question 6

If the interest rate is 12%, the current market value of $1 to be delivered in one year is

Accepted Answer

The current market value of $1 to be delivered in one year at a 12% interest rate is calculated using the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($1 in this case), r is the interest rate (12% or 0.12), and n is the number of periods (1 year). Thus, PV = $1 / (1 + 0.12)^1 = $1 / 1.12 = $0.89.

Question 7

The formula R/(1 + r)^t, where R is dollars, t is years, and r is the interest rate, is the formula for

Accepted Answer

The formula given is for calculating the present discounted value, which is used to determine the current worth of a future sum of money given a specific rate of interest.

Question 8

The present value of $100 in one year is $86.96 when the interest rate is 15%.

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 interest rate, and n is the number of periods. For $100 in one year at 15%, PV = 100 / (1 + 0.15)^1 = $86.96.

Question 9

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Accepted Answer

The firm will undertake the project if the present value of future cash flows is greater than or equal to the investment cost. If the interest rate is no more than 9%, the present value of the $200 annual income for 3 years will be enough to cover or exceed the initial $500 investment, making the project viable. Higher interest rates would decrease the present value of future cash flows, making the project less attractive.

Question 10

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 4%?

Accepted Answer

The answer of Tomʹs Donuts can invest in a new...

Question 11

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. At lower interest rates, the present discounted value of profits from the investment

Accepted Answer

At lower interest rates, the present discounted value of future profits increases because the discount factor (which is inversely related to the interest rate) is larger, making future profits worth more in today's dollars.

Question 12

You win a lottery that pays $50,000 each year for the next 10 years beginning next year. How much are your winnings worth today?

Accepted Answer

The value of the winnings today cannot be determined without knowing the discount rate or interest rate to calculate the present value of the annuity (the series of $50,000 payments).

Question 13

Assume the current interest rate is 25%. The present value of $2,000 to be received in one year would be

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 interest rate, and n is the number of periods. Here, FV = $2,000, r = 25% or 0.25, and n = 1. So, PV = $2,000 / (1 + 0.25) = $2,000 / 1.25 = $1,600.

Question 14

An investment should be undertaken if the present value of an expected stream of earnings from the investment exceeds the cost of the investment necessary to undertake it.

Accepted Answer

This statement is true because the fundamental principle of investment decision-making is that an investment is considered worthwhile if the present value of its expected future earnings (or cash flows) exceeds the initial cost required to make the investment. This ensures that the investment will generate a positive net present value, indicating profitability.

Question 15

Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Accepted Answer

The project should be undertaken if the present value of future cash flows is at least equal to the initial investment. The present value of $350 received at the end of years 1, 2, and 3 at a 5% interest rate is approximately $952.46, which is more than the initial cost of $950. Therefore, the interest rate must be no more than 5% for the project to be viable.

Question 16

The present discounted value of a stream of future income increases as the interest rate decreases.

Accepted Answer

A lower interest rate reduces the discount factor applied to future income, thus increasing the present value of that income stream.

Question 17

The higher the interest rate, the lower the present value.

Accepted Answer

Higher interest rates result in lower present values because the amount of money today is worth more than the same amount in the future due to the potential earning capacity of the money.

Question 18

Assume the current interest rate is 20%. The present value of $500 in one year would be

Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($500), r is the interest rate (20% or 0.20), and n is the number of periods (1 year). Plugging in the values gives PV = $500 / (1 + 0.20)^1 = $500 / 1.20 = $416.67, which rounds to $417.

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

The ________ of R dollars to be paid in t years is the amount you have to put aside now if you want to ensure that you end up with R dollars t years from now.

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Dynaflex Corp. is considering an investment project that costs $900 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. At higher interest rates, the present discounted value of profits from the investment

If the interest rate is 5%, the current market value of $1 to be delivered in one year is

If the interest rate is 12%, the current market value of $1 to be delivered in one year is

The formula R/(1 + r) ^t, where R is dollars, t is years, and r is the interest rate, is the formula for

The present value of $100 in one year is $86.96 when the interest rate is 15%.

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 4%?

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. At lower interest rates, the present discounted value of profits from the investment

You win a lottery that pays $50,000 each year for the next 10 years beginning next year. How much are your winnings worth today?

Assume the current interest rate is 25%. The present value of $2,000 to be received in one year would be

An investment should be undertaken if the present value of an expected stream of earnings from the investment exceeds the cost of the investment necessary to undertake it.

Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

The present discounted value of a stream of future income increases as the interest rate decreases.

The higher the interest rate, the lower the present value.

Assume the current interest rate is 20%. The present value of $500 in one year would be

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

The ________ of R dollars to be paid in t years is the amount you have to put aside now if you want to ensure that you end up with R dollars t years from now.

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Dynaflex Corp. is considering an investment project that costs $900 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. At higher interest rates, the present discounted value of profits from the investment

If the interest rate is 5%, the current market value of $1 to be delivered in one year is

If the interest rate is 12%, the current market value of $1 to be delivered in one year is

The formula R/(1 + r) t, where R is dollars, t is years, and r is the interest rate, is the formula for

The present value of $100 in one year is $86.96 when the interest rate is 15%.

ABC Corp. is considering an investment project that costs $500 today. It expects the project will yield income of $200 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Tomʹs Donuts can invest in a new espresso machine that costs $500 and will yield expected profits of $350 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 4%?

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. At lower interest rates, the present discounted value of profits from the investment

You win a lottery that pays $50,000 each year for the next 10 years beginning next year. How much are your winnings worth today?

Assume the current interest rate is 25%. The present value of $2,000 to be received in one year would be

An investment should be undertaken if the present value of an expected stream of earnings from the investment exceeds the cost of the investment necessary to undertake it.

Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

The present discounted value of a stream of future income increases as the interest rate decreases.

The higher the interest rate, the lower the present value.

Assume the current interest rate is 20%. The present value of $500 in one year would be

The formula R/(1 + r) ^t, where R is dollars, t is years, and r is the interest rate, is the formula for