Question 1

A project that you are considering today is expected to provide benefits worth $125,000 in one year. If the risk-free rate of interest ( rf) is 5%, then the value of the benefits of this project today are closest to:

$160,766

$175,560

$120,188

$119,048

Question 2

At an annual interest rate of 7%, the present value of $5000 received in five years is closest to:

$6750

$7015

$3565

$7035

Question 4

If the current rate of interest is 8% APR, then the future value of an investment that pays $250 per quarter and lasts 20 years is closest to:

$20,000

$48,443

$18,519

$9936

Question 5

Rearden Metal needs to order a new blast furnace that will be delivered in one year. The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed. The blast furnace manufacturer offers Rearden Metal a discount of $60,000 if they pay for the furnace now. If the interest rate is 7%, then the NPV of paying for the furnace now is closest to:

($5,421)

$5,421

($6,729)

$6,729

Question 6

Recycle America Inc. has the opportunity to trade 8000 pounds of plastic pellets made from recycled soda bottles for 5000 pounds of aluminum cans. If the current market price of scrap aluminum is $0.83 per pound and the current market price for plastic pellets is $0.57 per pound, then the added benefit (cost) of making this trade is:

$410

$780

($780)

($410)

Question 7

Suppose you have $1,000 today and the risk-free rate of interest ( rf) is 2.3%. The equivalent value in one year is closest to:

$1,023

$1000.00

$965.00

$1030.00

Question 8

Use the following information to answer the question(s) below.

Consider the following four alternatives:

1. $132 received in two years.

2. $160 received in five years.

3. $200 received in eight years.

4. $220 received in ten years.

The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be:

1, 2, 3, 4

3, 4, 2, 1

4, 3, 2, 1

3, 1, 2, 4

Question 9

Use the following information to answer the question(s) below.

Nielson Motors is considering an opportunity that requires an investment of $1,000,000 today and will provide $250,000 one year from now, $450,000 two years from now, and $650,000 three years from now.

If the appropriate interest rate is 10%, then the NPV of this opportunity is closest to:

$87,528

$1,300,000

$300,000

($88,000)