Trine University MGT 413 Part 3 1)If we want to move a cash flow forward in time we will usually multiply by a number bigger than 1, but sometimes we would want to divide in order to keep the present value unchanged

Trine University

MGT 413

Part 3

1)If we want to move a cash flow forward in time we will usually multiply by a number bigger than 1, but sometimes we would want to divide in order to keep the present value unchanged.

1. 1. True

1. 2. False

2. Assume we want to move a cash flow from period 8 to period 5. The calculation of the new amount of the cash flow would include
   1. Adding the interest rate to number one and raising the result to the power of 5.
   2. Adding the interest rate to number one and raising the result to the power of 3.
   3. Raising the interest rate to the power of 5.
   4. Raising the interest rate to the power of 3.

3. You have been promised to receive $400 in 4 years. After receiving the $400 you plan to deposit it for another 4 years at a 4% interest rate. How much will you have in year 8? In other words, if you move the $400 to be received in year 4 to year 8 what will be the new amount of the cash flow?

a. $384.62.

b.   $1,600.00.

c.     $1,664.00.

d. $467.94.

4. How many years would you have to wait in order for a deposit to grow from $1,000 to

$10,000, assuming a 7% interest rate?

1. 1. 34 years
   2. 10 years
   3. 9.35 years
   4. 16 years

5. Assuming the appropriate discount rate is equal to 9%, it would be better to receive $75 today than $100 in 3 years.
   1. True
   2. False

6. Assuming the appropriate discount rate is equal to 45%, it would be better to pay $333 today than $500 in 5 years.
   1. True
   2. False

7. If your company’s supplier offers you a discounted price of $500,000 if paid today, but you decide to wait with the payment for 3 years (your supplier is very patient) and pay the regular price of $750,000, you are in effect