Question 1

The one-year discount factor,at a discount rate of 25% per year,is:
A)1.25.
B)1.0.
C)0.8.
D)0.75.

Accepted Answer

The one-year discount factor is calculated as 1 / (1 + discount rate). At a 25% discount rate, it is 1 / 1.25 = 0.8.

Question 2

If the present value of $250 expected one year from today is $200,what is the one-year discount rate?
A)10%
B)20%
C)25%
D)30%

Accepted Answer

The present value (PV) formula is PV = FV / (1 + r), where FV is the future value and r is the discount rate. Plugging in the values: $200 = $250 / (1 + r). Solving for r gives r = 0.25 or 25%.

Question 3

What is the present value of the following cash flows at a discount rate of 9%? $$\begin{array} { c c c } 
\text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\$ 100,000 & \$ 150,000 & \$ 200,000
\end{array}$$
A)$372,431.81
B)$450,000.00
C)$405,950.68
D)$412,844.04

Accepted Answer

The present value is calculated by discounting each cash flow back to the present using the formula PV = CF / (1 + r)^n, where CF is the cash flow, r is the discount rate, and n is the year. Calculating for each year and summing them gives $372,431.81.

Question 4

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)1.00

Accepted Answer

Discount factor = Present value / Future value
Discount factor = $400 / $480
Discount factor = 0.8333

Question 5

An initial investment of $400,000 is expected to 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)$64,000

Accepted Answer

The answer of An initial investment of $400,000 is expected...

Question 6

The present value of $100,000 expected 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)$75,000.

Accepted Answer

The present value (PV) is calculated using the formula: PV = FV / (1 + r), where FV is the future value ($100,000) and r is the discount rate (0.25). So, PV = $100,000 / 1.25 = $80,000.

Question 7

Present value is defined as: A)future cash flows discounted to the present by an appropriate discount rate. B)inverse of future cash flows. C)present cash flows compounded into the future. D)future cash flows multiplied by the factor (1 + r)^t.

Accepted Answer

Present value is defined as future cash flows discounted to the present by an appropriate discount rate. It involves calculating the value that a future cash flow is worth today, based on a stated interest rate or discount rate.

Question 8

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)40%

Accepted Answer

The discount factor is calculated as (1/(1+r))^t, where r is the interest rate and t is the time period, in this case, t=1.

0.8333 = (1/(1+r))^1

Solving for r, we get:

r = 0.2 or 20%

Therefore, the answer is B.

Question 9

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)-$50,000

Accepted Answer

The NPV (Net Present Value) is the difference between the present value of cash inflows and the present value of cash outflows. In this case, the initial investment of $200,000 is an outflow and the present value of the cash flow generated is $250,000, which is an inflow. Therefore, the NPV can be calculated as follows:

NPV = Present value of cash inflows - Present value of cash outflows
NPV = $250,000 - $200,000
NPV = $50,000

Thus, the best choice is option B, which shows the NPV of the project is $50,000.

Question 10

The present value formula for a cash flow expected one period from now is: A)PV = C₁ × (1 + r). B)PV = C₁/(1 + r). C)PV = C₁/r. D)PV = (1 + r)/C₁.

Accepted Answer

The correct present value formula for a cash flow expected one period from now is PV = C₁/(1 + r). This formula takes into account the expected cash flow (C₁) and discounts it by the appropriate interest rate (r) to determine its present value.

Question 11

The net present value formula for one period is: A)NPV = C₀ + [C₁/(1 + r)]. B)NPV = PV required investment. C)NPV = C₀/C₁. D)NPV = C₁/C₀.

Accepted Answer

The correct formula for net present value (NPV) for one period is NPV = Cash Flow in Period 1 / (1 + r), where r is the discount rate. Choice A, despite the garbled text, is the only option that resembles the structure of the NPV formula, indicating cash flow in the numerator and adjusting for the discount rate in the denominator.

Question 12

The rate of return is also called the: 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)I and III only.

Accepted Answer

All three terms, discount rate, hurdle rate, and opportunity cost of capital, are used interchangeably with the rate of return. The discount rate is the rate used to determine the present value of future cash flows, the hurdle rate is the minimum required rate of return to undertake a project, and opportunity cost of capital is the return that investors could earn on alternative investments with similar risk. Therefore, all three options are correct.

Question 13

The present value of $121,000 expected 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)$108,900.

Accepted Answer

The answer of The present value of $121,000 expected one...

Question 14

The present value of $100.00 expected two years from today at a discount rate of 6% is:
A)$112.36.
B)$106.00.
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 15

At an interest rate of 10%,which of the following sequences of cash flows should you prefer? $$\begin{array}{l}
\begin{array} { c c c c } 
& \text { Year l } & \text { Year 2 } & \text { Year } 3 \
\text { A) } & 500 & 300 & 100 \
\text { B) } & 100 & 300 & 500 \
\text { C) } & 300 & 300 & 300
\end{array}\
\text { D) Any of the above as they all add up to } \$ 900
\end{array}$$
A)option A
B)option B
C)option C
D)option D

Accepted Answer

Option A has the highest present value when discounted at 10%, as it provides more cash earlier, which is more valuable due to the time value of money.

Question 16

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

Accepted Answer

The present value of combined cash flows is the sum of the present values of cash flow X and cash flow Y. Therefore, the present value of the combined cash flows is $240 + $160 = $400. Thus, the correct option is D.

Question 17

If the annual interest rate is 12.00%,what is the two-year discount factor?
A)0.7972
B)0.8929
C)1.2544
D)0.8065

Accepted Answer

The two-year discount factor is calculated as 1 / (1 + 0.12)^2 = 0.7972.

Question 18

The one-year discount factor,at an interest rate of 100% per year,is:
A)1.50.
B)0.50.
C)0.25.
D)1.00.

Accepted Answer

The discount factor is calculated as 1 / (1 + interest rate). At 100% interest, it is 1 / (1 + 1) = 0.50.

Question 19

If the present value of $600,expected 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 20

If the one-year discount factor is 0.90,what is the present value of $120 expected one year from today?
A)$100
B)$96
C)$108
D)$133

Accepted Answer

The answer of If the one-year discount factor is 0.90,what...

Quiz 2: How to Calculate Present Values

The one-year discount factor,at a discount rate of 25% per year,is:

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

What is the present value of the following cash flows at a discount rate of 9%? $\begin{array} { c c c } \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\$ 100,000 & \$ 150,000 & \$ 200,000\end{array}$

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

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000.What is the NPV of the project at a discount rate of 20%?

The present value of $100,000 expected at the end of one year,at a discount rate of 25% per year,is:

Present value is defined as:

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 a cash flow expected one period from now is:

The net present value formula for one period is:

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

The present value of $121,000 expected one year from today at an interest rate (discount rate) of 10% per year is:

The present value of $100.00 expected two years from today at a discount rate of 6% is:

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

If the annual interest rate is 12.00%,what is the two-year discount factor?

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

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

If the one-year discount factor is 0.90,what is the present value of $120 expected one year from today?