Part I. Multiple Choice (Concepts)

Select the "best answer" to the following multiple choice questions.

Question 1(4 points)

Interest that is calculated using only the principal is called:

Question 1 options:

Add-on interest

Effective interest

Compound interest

Simple interest

SaveQuestion 2(4 points)

Items which are not easily expressed in terms of dollars are called:

Question 2 options:

Variable costs

Legal issues

Intangible costs or Non-economic Factors

Principal

SaveQuestion 3(4 points)

An investment of $100,000 fiveyears ago has accumulated to $200,000 now. Thesimple interestearned on the investment is equalto:

Question 3 options:

20.0%

13.8%

14.4%

8.0%

SaveQuestion 4(4 points)

A quick, rough estimate of the time required for money to double can be obtained by dividing which of the following numbers by thecompoundinterest rate?

Question 4 options:

56

64

72

100

SaveQuestion 5(4 points)

Minimum attractive rate of return refers to:

Question 5 options:

The rate of return guaranteed on a bank savings account.

The lowest rate of return required to attract foreign capital.

The rate of return achievable from a safe government bond.

The rate of return that must be equaled or exceeded to render an investment attractive. Also referred to as the hurdle rate or minimum acceptable rate of return.

SaveQuestion 6(4 points)

What equation is used to calculate the Capital Recovery or A/P factor?

Question 6 options:

[i(1+i)ⁿ] / [ (1+i)ⁿ-1]

[(1+i)ⁿ- 1 ] / [ i(1+i)ⁿ] - 1/i

i /[(1+i)ⁿ- 1 ]

[(1+i)ⁿ- 1 ] / [ i(1+i)ⁿ]

SaveQuestion 7(4 points)

What is the correct numerical value for the following factor (F/P, 16%, 5)?

Usefactor formula or the "Compound Interest Factor Tables" directly.

Question 7 options:

6.8771

2.1003

3.2784

0.4761

SaveQuestion 8(4 points)

What is the correct numerical value for the following factor (A/P, 30% ,15)?

Usefactor formula or the "Compound Interest Factor Tables" directly.

Question 8 options:

0.30598

0.32346

51.1859

167.2863

SaveQuestion 9(4 points)

The equation that is used to calculate P/A factor is:

Question 9 options:

P/A= [(1 +i)ⁿ- 1] / [i(1 +i)ⁿ]

P/A= [(1 +i)ⁿ- 1] / [i(1 +i)]

P/A = F(1 +i)ⁿ

P/A =[i (1 +i)ⁿ]/ [(1 +i)ⁿ- 1]

SaveQuestion 10(4 points)

What is the correct numerical value for the following factor(A/F,4%,8) ?

Usefactor formula or the "Compound Interest Factor Tables" directly.

Question 10 options:

0.22192

0.10853

9.2142

1.3686

SavePart II. Multiple Choice_Short Problems

Select the "best answer" to the following multiple choice questions.

Question 11(6 points)

At a compound interest rate of 10% per year, $45,000 one year ago is now equivalent to:

Question 11 options:

$54,000

$45,000

$49,500

$40,909

SaveQuestion 12(6 points)

The length of time required for money to triplein value at a simple interest rate of 8% per year is equalto:

Question 12 options:

12.5years

50years

25years

38years

SaveQuestion 13(6 points)

What is the present worth of a future cost of $182,000 to Corning, Inc., 6 years from now at acompound interest rate of 12% per year?

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

Question 13 options:

$82,069

$102,092

$359,232

$92,201

SaveQuestion 14(6 points)

An investment of $30,000 increased to $80,000 over a 8-year period. What was the compound rate of return on the investment?

Question 14 options:

10.8%

The interest rate cannot be determined.

13.0%

9.0%

Comments:

Before starting calculations, make sure you can see all the cash flows in the table from year 0 to 7.

All the answers listed were calculatedbased on compound interest factor tables.

Question 15 options:

$379

$313

$285

$610

SaveQuestion 16(6 points)

A cost savings project on an aircraft manufacturing process generates savingsof$100,000 per year.Your boss wants you to calculate the present worth of this savings over a 5-year period at a compound interest rate of 12% per year.

Assume that the process generates savings every year starting in year 1 and continue to year 5.

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

Question 16 options:

$176,230

$635,280

$379,080

$360,480

SaveQuestion 17(6 points)

In order to update a production process, a company can spend money now or four years from now. If the amount now would be $25,000 , what equivalent amount could the company spend four years from now at a compound interest rate of 10% per year?

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

Question 17 options:

$40,263

$14,641

$116,025

$36,603

SaveQuestion 18(6 points)

SMS Inc.wants to have enough money to purchase a new tractor-trailer in 8years. If the unitwillcost $800,000, how much should the company set aside each year (starting at the end ofyear 1 and continue until year 8) if the account earns a compound interest of 10% per year?

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

Question 18 options:

$373,200

$69,952

$149,952

$58,912

SaveQuestion 19(6 points)

The right expression to calculate how much money will be in an investment account 15 years from now if you deposit $4,000 now and $7,000nine years from now and the account earns a compound interest rate of 12% is;

Question 19 options:

F= 4,000 (F/P, 12%, 15) + 7,000 (F/P, 12%, 6)

F= 4,000 (F/P, 12%, 15) + 7,000 (F/P, 12%, 15)

F= 4,000 (P/F, 12%, 15) + 7,000 (P/F, 12%, 6)

F= 4,000 (F/P, 12%, 15) + [7,000 (F/P, 12%, 6) * (F/P,12%,15)]

SaveQuestion 20(6 points)

If $1,000 is borrowed at 15% per yearsimpleinterest, thetotal amount dueat the end of eightyears is equalto:

Question 20 options:

$2,800

$2,200

$1,200

$3,059

SaveBonus Questions

Select the "best answer" to the following questions.

Question 21(2.5 points)

Indicate if the following statement is True or False.

The MARR is not a rate that is calculated like a ROR. The MARR is established by (financial) managers and is used as a criterion against which an alternative's ROR is measured, when making the accept/reject investment decision.

Question 21 options:

True

False