21) What is the current ratio for 2015? A) 2.06 B) .95 C) .98 D) 1.98 E) 1.95

21)

What is the current ratio for 2015? A) 2.06 B) .95 C) .98 D) 1.98 E) 1.95

21)

22) An annuity stream of cash flow payments is a set of: A) increasing cash flows occurring at set intervals of time that go on forever. B) equal cash flows occurring each time period forever. C) either equal or varying cash flows occurring at set intervals of time for a fixed

period. D) arbitrary cash flows occurring each time period for no more than 10 years. E) equal cash flows occurring each time period over a fixed length of time.

22)

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23) The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.

A) compound interest B) periodic interest C) daily interest D) effective annual E) annual percentage

23)

24) You are considering two projects with the following cash flows:

Assuming both projects have the same initial cost, you know that: A) both projects have equal net present values at any discount rate. B) Project B has a higher net present value than Project A. C) Project A is more valuable than Project B given a positive discount rate. D) there are no conditions under which the projects can have equal values. E) both projects offer the same rate of return.

24)

25) You would be making a wise decision if you chose to: A) base decisions regarding investments on effective rates and base decisions

regarding loans on annual percentage rates. B) ignore the effective rates and concentrate on the annual percentage rates for all

transactions. C) accept the loan with the lower effective annual rate rather than the loan with the

lower annual percentage rate. D) invest in an account paying 6 percent, compounded quarterly, rather than an

account paying 6 percent, compounded monthly. E) assume all loans and investments are based on simple interest.

25)

26) The net present value of a project is equal to the: A) present value of the future cash flows minus the initial cost. B) sum of the project’s anticipated cash flows. C) present value of the future cash flows. D) future value of the future cash flows minus the present value of the initial cost. E) future value of the future cash flows minus the initial cost.

26)

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27) Olivia is willing to pay $185 a month for four years for a car payment. If the interest rate is 4.9 percent, compounded monthly, and she has a cash down payment of $2,500, what price car can she afford to purchase?

A) $8,342.05 B) $8,533.84 C) $8,686.82 D) $10,961.36 E) $10,549.07

27)

28) You borrow $12,600 to buy a car. The terms of the loan call for monthly payments for five years at an interest rate of 4.65 percent, compounded monthly. What is the amount of each payment?

A) $253.22 B) $235.76 C) $243.73 D) $233.04 E) $230.62

28)

29) Luis has a management contract which grants him a lump sum payment of $20 million be paid upon the completion of his first five years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 4.5 percent on these funds. How much must the company set aside each year for this purpose?

A) $3,655,832.79 B) $3,798,346.17 C) $3,801,033.67 D) $3,775,042.93 E) $4,038,018.22

29)

30) Stu can purchase a one-bedroom house near his college today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in four years for $150,000 if he just puts a little effort into cleaning up the property. At a discount rate of 6.5 percent, what is the expected net present value of this purchase opportunity?

A) $2,487.43 B) $4,311.02 C) $7,208.18 D) $3,001.61 E) $6,598.46

30)

31) The difference between the present value of an investment’s future cash flows and its initial cost is the:

A) net present value. B) discounted payback period. C) internal rate of return. D) profitability index. E) payback period.

31)

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32) The length of time required for a project’s discounted cash flows to equal the initial cost of the project is called the:

A) discounted profitability index. B) discounted payback period. C) net present value. D) payback period. E) discounted net present value.

32)

33) The discount rate that makes the net present value of an investment exactly equal to zero is called the:

A) profitability index. B) equalizer. C) external rate of return. D) internal rate of return. E) average accounting return.

33)

34) A situation in which accepting one investment prevents the acceptance of another investment is called the:

A) net present value profile. B) issues of scale problem. C) multiple rates of return decision. D) mutually exclusive investment decision. E) operational ambiguity decision.

34)

35) The present value of an investment’s future cash flows divided by the initial cost of the investment is called the:

A) internal rate of return. B) net present value. C) profitability index. D) profile period. E) average accounting return.

35)

36) All else constant, the net present value of a typical investment project increases when: A) the initial cost of a project increases. B) the discount rate increases. C) all cash inflows occur during the last year instead of periodically throughout a

project’s life. D) each cash inflow is delayed by one year. E) the rate of return decreases.

36)

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37) The primary reason that company projects with positive net present values are considered acceptable is that:

A) they return the initial cash outlay within three years or less. B) they create value for the owners of the firm. C) the required cash inflows exceed the actual cash inflows. D) the investment’s cost exceeds the present value of the cash inflows. E) the project’s rate of return exceeds the rate of inflation.

37)

38) One characteristic of the payback method of project analysis is the: A) standardized cutoff point for cash flow consideration. B) discounting of all cash flows. C) use of variable discount rates. D) consideration of the risk level of each project. E) bias towards liquidity.

38)

39) Project A is opening a bakery at 10 Center Street. Project B is opening a specialty coffee shop at the same address. Both projects have unconventional cash flows, that is, both projects have positive and negative cash flows that occur following the initial investment. When trying to decide which project to accept, given sufficient funding to accept either, you should rely most heavily on the _____ method of analysis.

A) payback B) net present value C) discounted payback D) profitability index E) internal rate of return

39)

40) If a firm is more concerned about the quick return of its initial investment than it is about the amount of value created, then the firm is most apt to evaluate a capital project using the _____ method of analysis.

A) modified internal rate of return B) profitability index C) internal rate of return D) payback E) net present value

40)

41) Accepting a positive net present value (NPV) project: A) means the present value of the expected cash flows is equal to the project’s cost. B) guarantees all cash flow assumptions will be realized. C) indicates the project will pay back within the required period of time. D) ignores the inherent risks within the project. E) is expected to increase the stockholders’ value by the amount of the NPV.

41)