1. If the net present value (NPV) is positive when an investment is discounted at 12%, we know that the internal rate of return (IRR) is:

1.

Less than 12%

2.

Equal to 12%

3.

Greater than 12%

4.

Greater than 0%

2. Which of the following is not a reason why an organization may choose to lease something versus purchase it?

1.

The total present value of payments of the lease option is less than the purchase option

2.

Technology is changing rapidly and equipment is becoming obsolete before its useful life is up

3.

Generally lease financing is cheaper than the organization's cost of capital.

4.

None of the above

3. What is the present value of an annuity that pays $100 per year for the next 3 years assuming a discount rate of 10%?

1.

$300

2.

$273

3.

$249

4.

None of the above

4. What is the present value of a perpetuity (an annuity that lasts forever)? Assume payment is equal to $100 and I is equal to 10%.

1.

$100

2.

$110

3.

$10

4.

$1000

5. Which of the following statements is true?

1.

If the NPV is less than $0, the discount rate was equal to the internal rate of return

2.

If the NPV is equal to 0, the discount rate was less than the internal rate of return

3.

If the NPV is equal to 0, the discount rate was greater than the Internal rate of Return.

4.

None of the above

6. Which of the following is not true of intra-year compounding?

1.

Interest is earned on interest during the year

2.

The future value of an investment is larger than under annual compounding

3.

The present value of an investment is smaller than under annual compounding

4.

None of the above

7. What is the Effective Annual Rate of a loan that requires semiannual payment at a stated interest rate of 10%?

1.

10%

2.

9.75%

3.

10.25%

4.

None of the above

8. Which of the following is true about an amortization schedule?

1.

Annual interest payments increase over time

2.

Annual principal payments increase over time

3.

Annual interest and principal payments stay constant over time

4.

None of the above

9. The risk of a portfolio _________ as more investments are randomly added

1.

Increases

2.

Decreases

3.

Stays the same

4.

None of the above

10. A bond sells at a premium when ...

1.

Interest rates fall

2.

Interest rates increase

3.

It matures

4.

None of the above

11. My budget for next year is based on last year's budget, plus ten percent.This is based on the zero-based budgeting method.

True

False

12. What is the present value of $1000, to be received in four years?How much is this worth

today?Assume a discount rate of 10%

$638

$658

$683

$738

13. What is the effective annual rate, with a nominal annual rate of 10%, compounded monthly?

10.0 percent

9.0 percent

10.47 percent

10.87 percent

14. What is the present value of an ordinary annuity of $500, paid annually, for 10 years, discounted at 12%?

$2425

$2625

$2825

$5000

15. Lakewood Clinic (overhead allocation)

The housekeeping services department of Lakewood Clinic, a multispecialty practice in Cleveland, Ohio, had $200,000 in direct costs during 2011. These costs must be allocated to three revenue-producing patient services departments using the direct method. Two costs drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $10 million in total revenues during 2011, and to support these clinical activities, they used 4,000 hours of housekeeping services.

What is the allocated rate ifhours of housekeeping services is used as the cost driver?

16. Here are the 2011revenues for the WendoverGroup Practice Association for four different budgets (in thousands of dollars):

Static Budget: $425

Flexible (Enrollment/Utilization Budget): $200

Flexible (Enrollment) Budget: $180

Actual Results: $300

17. What does the budget data tell you about the nature of Wendover'spatients?

They are all fee-for-service patients.

They are under a capitated arrangement.

There are both capitated and fee-for-service patients.

None of the above.

18. Which of the options belowis the rate that would produce the same ending amount if compounding were annual?

Stated rate

Effective annual rate

Periodic rate

Amortized rate

19. Investment return is a way to express the financial consequences of an investment. In general, investment return can be measured either in...

Dollar terms

Rate of return (percentage) terms

As a ratio

A and B

A and C

20. Suppose that a person won the state lottery and was offered a choice of two prizes:

(1) $500,000 or

(2) a coin-toss gamble in which he/she would get $1 million for heads and zero for tails.

20a. What is the expected dollar return on the gamble?

20b. What is the effective annual rate (EAR) if the stated rate is 8percent and compounding occurs semiannually?