11)

The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is:

the foregone interest that could be earned if you had the money today.

the taxes paid on any earnings.

the value of $10 relative to the total income of that person.

the value of $10 relative to the total income of all persons.

12)

If the interest rate is 5 percent, what is the present value of $10 received one year from now?

$9.50

$10.05

$9.52

$9.77

13)

If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?

$1,2000

$909

$950

$1,100

14)

If the interest rate is 5 percent, the present value of $200 received at the end of five years is:

$121.34.

$156.71.

$176.41.

$132.62.

15)

When dealing with present value, a higher interest rate:

does not affect the present value of the future amount.

increases the present value of a future amount.

decreases the present value of a future amount.

None of the statements associated with this question are correct.

16)

A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present value of purchasing the tractor?

$6,764

$9,362

$18,362

None of the statements associated with this question are correct.

17)

A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

$325,816

$376,741

$400,000

$346,511

18)

A firm will maximize the present value of future profits by maximizing current profits when the:

growth rate in profits is constant.

growth rate in profits is larger than the interest rate.

interest rate is larger than the growth rate in profits and both are constant.

growth rate and interest rate are constant and equal.

19)

Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm?

$31,000

$30,000

$26,500

$35,000

20)

To maximize profits, a firm should continue to increase production of a good until:

total revenue equals total cost.

profits are zero.

marginal revenue equals marginal cost.

average cost equals average revenue.