Chapter 3 HW

Which of the following statements is true? Question 3Select one: a. The inflation rate is a measure of how much providers of capital expect the purchasing power of their investment to grow. b. The real cost of capital is a measure of how much providers of capital expect the purchasing power of their investment to grow. c. The real cost of capital is a measure of how much providers of capital expect their wealth, as measured by the number of dollars they have, to grow. d. The nominal cost of capital is a measure of how much providers of capital expect the purchasing power of their investment to grow.

This method evaluates the return of an investment by dividing the annual average income by the average investment, Select one: a. Discounted Approach b. Simple rate of return Method c. Cash Payback Method d. Internal Rate of Return Method

The present value of an investment's future cash flows divided by its initial cost is the: O Net present value. O Internal rate of return. O Average accounting return. O Profitability index. O Payback period.

Discounting an investment’s cash flows using the internal rate of return will result in which of the following? Group of answer choices net present value of one net present value of zero positive net present value negative net present value

The payback method measures: The profitability of an investment. The net cash inflow from an investment. The economic life of an investment. How rapidly the investment is recovered. The investment’s true rate of return.

NPV measures a. the change in firm value b. the profitability of an investment c. the change in wealth d. the present value of the future net cash flows from the investment e. all of the above

3. Future value The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called four time-value-of-money variables. Which of the following is not one of these variables? The trend between the present and future values of an investment The duration of the deposit (N) The interest rate (t) that could be earned by deposited funds The present value (PV) of the amount deposited This process requires knowledge of the values of three of 4

What is the nominal rate of return on an investment? Multiple choice question. It is the percentage change in the number of dollars the investor has. It is the rate of return earned in excess of the average rate of return earned by similar investments. It is the average rate of return earned by similar investments. It is the percentage change in the buying power of the investor.

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The profitability index is calculated by _________.   Multiple choice question. dividing the initial investment by the sum of the future cash flows dividing the sum of the future cash flows by the initial investment dividing the PV of the future cash flows by the initial investment dividing the initial investment by the PV of the future cash flows

What is the nominal rate of return on an investment? Multiple choice question. It is the average rate of return earned by similar investments. It is the percentage change in the number of dollars the investor has. It is the percentage change in the buying power of the investor. It is the rate of return earned in excess of the average rate of return earned by similar investments.

Which one of the following is an indicator that an investment is acceptable? Check all that apply: Profitability index equal 1.5 Profitability index greater than 0 the required return less than internal rate of return IRR equal to zero Payback period exceeds the required period Profitability index equal 1

______ is a measure of how much value is created or added today by undertaking an investment. Multiple choice question. The internal rate of return The profitability index Net present value Average accounting return

What is the definition of “opportunity cost” as it relates to the time value of money? It is the loss of a potential gain choosing one alternative over another, particularly ignoring the time value of money. It is the benefit side of the cost/benefit ratio. It is the price of selling an asset. It is the amount of money invested in saving bonds. exoplain your answer give correct answer

Provide answer general Accounting question

This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero. Group of answer choices A. internal rate of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method

2. How would you describe the correlation between risk and return in investments, and what are the various types of income that investors consider from their standpoint?

Profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).

7. The internal rate of return (IRR) can best be described as: A. the discount rate at which a set of cash flows have a zero net present value B. the discount rate at which a set of cash flows have a positive net present value c. the rate which the business has to pay to raise finance for an investment the return required by the managers of the business D.

The internal rate of return (IRR) is The same thing as the cost of capital. The discount rate that equates the present values of cash inflows and cash outflows. The same thing as the net present value. The same thing as the profitability index.

Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use present values are (1) Net present value method (NPV) and (2) Internal rate of return (IRR) method. Methods That Use Present Values Of the two capital investment evaluation methods, a defining characteristic NPV and IRR is that they     the time value of money. This means that money tomorrow is worth     money today. And, that cash invested today has the potential to earn income and     in value over time. True or False: When making an investment decision between two mutually exclusive projects, the project with the greatest return on investment should be chosen.       Feedback   Review the definition of Methods that use present value by rolling your mouse over the underlined item. Review the definition of Mutually Exclusive Projects by rolling your mouse over the underlined…

Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.

4. Present value Finding a present value is the reverse of finding a future value. Which of the following is true about finding the present value of cash flows? O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a specified rate of return. O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return. Which of the following investments that pay will $5,000 in 12 years will have a higher price today? O The security that earns an interest rate of 8.25%. O The security that earns an interest rate of 5.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 13.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will exhibit the lower price? O An investment…

Q 2. Suppose an investment has conventional cash flows with positive NPV. How would it impact your decision based on capital budgeting techniques mentioned below? i. Profitability index (PI) ii. Internal Rate of Return (IRR) iii. Payback Period (PBP)