6. Assume that the interest rate is greater than zero. Which of the following cash-inflow streams totaling $1, 500 would you prefer? The cash flows are listed in order for Year 1, Year 2, and Year 3 respectively? With Explanation

(a) $700; $500 and $300

(b) $300; $500 and $700

(c) $500; $500 and $500

(d) Any of the above, since they each sum to $1,500

7. What is the present value of $8, 000 to be paid at the end of three years if interest rate is 11%? With Explanation

(a) $6,015

(b) $4, 872

(c) $6, 725

(d) $1, 842

8. What is the present value of a stream of $2,500 semiannual payments received at the end of each period for the next 10 years? The APR is 6%?

(a) $35,810

(b) $38,310

(c) $37,194

(d) $36,885

9. What is the present value of $1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%? With Explanation

(a) $714

(b) $1,462

(c) $322.69

(d) $401.98

10. You are to receive cash flows of $10,000,000 in 4 years time and $11,000,000 in 8 years time. Your discount rate is 9% per year. What is the present value of the cash flows? With Explanation

(a) $9,531,412

(b) $9,784,598

(c) $10,453,025

(d) $12,604,781

CAPITAL BUDGETING

11. A project costs $16,000.The estimated annual cash inflows during its 3 year life are $8,000, $7,000 and $6,000 respectively. What will be the pay-back period? With Explanation

(a) 2 years

(b) 2.5 years

(c) 3 years

(d) 4 years