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1. The present value of a given amount decreases as the number of years over which it is to
be discounted also decreases.
2. An increase in the discount rate will result in an increase in the present value of a given
cash flow.
3. A decrease in the discount rate:
4. If an investment has cash outflows of Q dollars at the end of each year for three years,
then the present value of these cash outflows under a 10% rate of return will be:
5. (Ignore income taxes in this problem.) You have deposited $21,618 in a special account
that has a guaranteed interest rate of 18% per year. If you are willing to completely exhaust the
account, what is the maximum amount that you could withdraw at the end of each of the next 9
years? Select the amount below that is closest to your answer.
6. (Ignore income taxes in this problem.) How much would you have to invest today in the
bank at an interest rate of 7% to have an annuity of $2,800 per year for 9 years, with nothing left in
the bank at the end of the 9 years? Select the amount below that is closest to your answer.
7. (Ignore income taxes in this problem.) You have deposited $5,188 in a special account
that has a guaranteed interest rate. If you withdraw $1,400 at the end of each year for 7 years, you
will completely exhaust the balance in the account. The guaranteed interest rate is closest to:
8. (Ignore income taxes in this problem.) Virani Corporation has entered into a 8 year lease
for a piece of equipment. The annual payment under the lease will be $2,000, with payments
being made at the beginning of each year. If the discount rate is 9%, the present value of the lease
payments is closest to:
9. (Ignore income taxes in this problem.) Judy Soope just received an annual raise of $500
starting with the current year. If Judy anticipates working for eight more years (including the
current year) and the cash flows are discounted at 8%, what cash award today would be
equivalent to the pay raise?
10. (Ignore income taxes in this problem.) Tweedie Corporation has entered into a 7 year
lease for a building it will use as a warehouse. The annual payment under the lease will be $1,662.
The first payment will be at the end of the current year and all subsequent payments will be made
at year-ends. What is the present value of the lease payments if the discount rate is 13%?
11. (Ignore income taxes in this problem.) In order to receive $12,000 at the end of three years
and $10,000 at the end of five years, how much must be invested now if you can earn 14% rate of
return?
12. (Ignore income taxes in this problem.) Mary wants to have $20,000 available for use in
four years. How much should Mary invest now in order to have the $20,000 available in four years
if she can invest money at 16%:
