Question 1. All of the following are capital investment decisionsexcept:

1. All of the following are capital investment decisionsexcept:

A. purchasing $40,000 of machinery.

B. buying a $4,000,000 manufacturing plant.

C. acquiring $400,000 of common stock.

D. paying $500,000 to renovate a retail store.

2. Which of the following isnota factor in explaining why the present value of a future dollar is less than one dollar?

A. Inflation

B. Interest

C. Historical cost

D. Risk of failure to receive expected cash inflows

3. Which statement characterizes the time value of money concept?

A. The future value of a present dollar is less than one dollar.

B. The present value of a future dollar is less than one dollar.

C. The timing of cash flows is not relevant to decision making.

D. None of the above answers are correct.

4. Tompkins Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows.

The cash receipt schedule for each investment is given below:

Select the correct statement.

A. Tompkins should be indifferent between the two investments because they provide the same total cash inflows.

B. Tompkins should choose Investment I because of the time value of money.

C. Tompkins should choose Investment II because it generates more immediate cash inflows.

D. Time value of money techniques are not useful for comparing these investments.

5. Which of the following statements describes the cost of capital?

A. The return that a company must pay its investors and creditors

B. The maximum acceptable rate of return on investments

C. The internal rate of return on investments

D. The interest rate the bank charges its best customers

6. The cost of capital is called all of the following except:

A. equity rate.

B. discount rate.

C. hurdle rate.

D. cutoff rate.

7. For a capital investment project to be acceptable, it must generate a rate of return:

A. less than the required rate of return.

B. equal to or greater than the cost of capital.

C. equal to the initial investment.

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D. none of the above answers are correct.

8. What amount of cash must be invested today in order to have $30,000 at the end of one year assuming the rate of return is 9%? (Do not

round your PV factors.)

A. $22,727.28

B. $27,000.00

C. $27,522.94

D. $27,300.00

9. What amount of cash would result at the end of one year, if $17,000 is invested today and the rate of return is 10%? (Do not round your

PV factors.)

A. $17,000

B. $18,530

C. $18,700

D. None of these

10. Darlene projects that she can get $100,000 cash per year for 5 years on a real estate investment project. If Darlene wants to earn a rate of

return of 10%, what is the maximum that she should pay for the investment? (rounded to the nearest dollar)

A. $62,092

B. $310,461

C. $379,079

D. $450,000

11. Henry has $500,000 to invest in a 5 year annuity. Assuming the time value of money is 10%, what amount will Henry receive in cash

each year? (Do not round your PV factors. Round your answer to the nearest dollar.)

A. $100,000

B. $110,000

C. $131,899

D. None of the above answers are correct.

12. A cash flow that only occurs once is referred to as:

A. an annuity.

B. a lump sum.

C. a principal sum.

D. None of these.

13. Which of the following cash flow patterns represents of an annuity?

A. A

B. B

C. C

D. Any of the answers can represent an annuity.

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