Question 1

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 cumulative total cash flow is greater than or equal to $0, meaning that the initial investment has been fully recovered. None of the other options are relevant to calculating the payback year.

Question 2

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 3

Case 6-2
  
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 4

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 5

Case 6-2
  
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

The IRR function should be applied to the cash flow amounts, not the project names or times. The cash flow amounts are listed in row 27, so the correct formula is =IRR(B27:G27).

Question 6

Case 6-1
  
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

The answer of Case 6-1
  
Phil has put together...

Question 7

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

Accepted Answer

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

Question 8

Case 6-1
  
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 New Name dialog box allows you to create a range name without having to first enter the value in a specific cell. This is useful for creating range names based on formulas or for referencing cells that may change in location.

Question 9

Case 6-2
  
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 values argument in the IRR function must include both positive and negative cash flows. Having all positive or all negative cash flows would not allow for the calculation of the IRR.

Question 10

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 11

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 12

Case 6-2
  
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

The IRR represents the discount rate that makes the NPV of a project equal to zero, so when calculating IRR manually, the IRR value is substituted as the discount rate in the NPV formula.

Question 13

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 14

Case 6-1
  
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 for determining the projected cash flow is to add taxable income (C19), depreciation added back to the cash flow (C21), and principal payments deducted from the cash flow (already a negative value) (C22). Therefore, the correct formula is =SUM(C19,C21,C22).

Question 15

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

Accepted Answer

ROI (Return on Investment) is calculated by dividing the sum of cash flows generated by an investment by the investment value. Therefore, the correct choice is A - sum of cash flows. The other options do not accurately reflect the calculation of ROI.

Question 16

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 uses a mixed reference to reference the original starting cell and then include all cells up to the current cell in the sum. This can be copied across a row to create a row of cumulative totals. The other formulas are not appropriate for creating a row of cumulative totals.

Question 17

Case 6-1
  
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 18

Case 6-1
  
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 Case 6-1
  
Phil has put together...

Question 19

Case 6-2
  
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 Case 6-2
  
Natalie is working on...

Question 20

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...

Quiz 6: Evaluating the Financial Impact of Loans and Investments