Homework answers / question archive / 1) If r is the discount rate, the formula [1/(1 + r)] refers to the future value interest factor associated with r for one period

1) If r is the discount rate, the formula [1/(1 + r)] refers to the future value interest factor associated with r for one period

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1) If r is the discount rate, the formula [1/(1 + r)] refers to the

1. 1. 1. future value interest factor associated with r for one period.
      2. present value of some future cash flow.
      3. present value interest factor associated with r for one period.
      4. future value interest factor for an annuity with a duration of r periods.
2. Future value is the
   1. 1. sum of dollars-in discounted to time zero.
      2. sum of dollars-out discounted to time zero.
      3. difference of dollars-in and dollars-out.
      4. value of dollars-in minus dollars-out for future periods adjusted for any interestcompounding factor.
3. All other things being equal, as the time period for receiving an annuity lengthens,
   1. 1. the related present value factors increase.
      2. the related present value factors decrease.
      3. the related present value factors remain constant.
      4. it is impossible to tell what happens to present value factors from the information given.
4. Which of the following indicates that the first cash flow is at the end of a period?

Ordinary annuity                Annuity due

4. 1. 1. yes              no
      2. yes              yes
      3. -no               yes
      4. no               no
5. Assume that X represents a sum of money that Bill has available to invest in a project that will yield a return of r. In the formula Y = X(1 + r), Y represents the a.       future value of X in one period.
   1. 2. future value interest factor associated with r.
      3. present value of X.
      4. present value interest factor associated with r.
6. The capital budgeting technique known as accounting rate of return uses salvage value           time value of money
   1. 1. no              no
      2. no              yes
      3. yes             yes
      4. yes             no
7. In computing the accounting rate of return, the __________ level of investment should be used as the denominator. a.          average
   1. 2. initial
      3. residual
      4. cumulative
8. Linda Smith borrows $50,000 from her bank on January 1. She is to repay the loan in equal annual installments over 30 years. How much is her annual repayment if the bank charges 10 percent interest? Present value tables or a financial calculator are required.
   1. 1. $1,667
      2. $4,200
      3. $2,865
      4. $5,304
9. A capital budget is used by management to determine in what to invest          how much to invest
   1. 1. no                 no
      2. no                 yes
      3. yes                no
      4. yes                yes
10. The weighted average cost of capital represents the
    1. 1. cost of bonds, preferred stock, and common stock divided by the three sources.
       2. equivalent units of capital used by the organization.
       3. overall cost of capital from all organization financing sources.
       4. overall cost of dividends plus interest paid by the organization.