Fundamentals of Corporate Finance 3e Test Bank
76.
You need to have $15,000 in five years to payoff a home equity loan. You can invest in an
account that pays 5.75 percent compounded quarterly. How much will you have to invest today
to attain your target in five years? (Round to the nearest dollar.)
A)
$4,903
B)
$11,275
C)
$13,184
D)
$12,250
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
77.
Tamera Watson is saving for her daughter’s college education. She wants to have $50,000
available when her daughter graduates from high school in four years. If the investment she is
considering will pay 8.25 percent compounded monthly, how much will she have to invest
today to reach her target? (Round to the nearest dollar.)
A)
$35,987
B)
$39,659
C)
$41,275
D)
$36,450
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
78.
Michael Peterson is seeking to accumulate $25,000 in six years to invest in a real estate
venture. He can earn 6.35 percent annual interest with monthly compounding in a private
investment. How much will he have to invest today to reach his goal? (Round to the nearest
dollar.)
A)
$18,527
B)
$23,015
C)
$17,097
D)
$19,648
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
79.
Celesta Frank wants to go on a cruise in three years. She could earn 8.2 percent compounded
monthly in an account if she were to deposit the money today. She needs to have $10,000 in
three years. How much will she have to deposit today? (Round to the nearest dollar.)
A)
$6,432
B)
$7,826
C)
$8,148
D)
$7,763
Ans:
B
80.
The process of converting future cash flows to what its present value is called:
A)
annualizing.
B)
discounting.
C)
compounding.
D)
capital budgeting.
Fundamentals of Corporate Finance 3e Test Bank
81.
Which of the following equations is used to calculate the present value of a sum to be received
in future?
A)
PV = FVn ÷ (1 + i)n
B)
PV = FVn × (1 + i)n
C)
PV = (1 + i)n + FVn
D)
PV = (1 + i)n ÷ FVn
:
A
82.
As per the rule of 72, the time to double your money (TDM) approximately equals:
A)
72/n.
B)
72/i.
C)
72/Initial investment.
D)
72/Future value.
:
B
Fundamentals of Corporate Finance 3e Test Bank
83.
Which of the following statements is true of the rule of 72?
A)
It can be used to determine the amount of time it takes to double an investment.
B)
It is fairly accurate for interest rates between 25 and 50 percent.
C)
It states that the time to double your money (TDM) approximately equals 72/i, where i
represents the years it takes to double your investment.
D)
It can be used to estimate approximate compound interest earned for a period of 72 days.
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
84.
Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to
repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to
the nearest percent.
A)
5%
B)
6%
C)
7%
D)
8%
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
85.
Anne Morgan wants to borrow $6,000 for a period of four years. She has two choices. Her bank
is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow
from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Anne
go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round
to the nearest percent.)
A)
She should borrow from the bank as the bank is charging a higher interest of 9%.
B)
She should borrow from her firm as it is charging a lower interest of 7%.
C)
She should borrow from the bank as the bank is charging a higher interest of 8%.
D)
She should borrow from her firm as it is charging a lower interest of 6%.
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Measurement
86.
Patrick Smith has $5,000 to invest in a small business venture. His partner has promised to pay
him back $8,200 in five years. What is the return earned on this investment?
A)
9.3%
B)
8.7%
C)
11.1%
D)
10.4%
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
87.
Winston Baker wants to invest $25,000 in a spa that his sister is starting. He will triple his
investment in six years. What is the rate of return that Winston is being promised? (Rounded to
the nearest percent.)
A)
18%
B)
20%
C)
12%
D)
25%
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
88.
Michael Harper has $3,000 to invest for three years. He wants to receive $5,000 at the end of
the three years. What invest rate would his investment have to earn to achieve his goal? (Round
to the nearest percent.)
A)
19%
B)
21%
C)
13%
D)
16%
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
89.
Finor Traps manufactures an innovative mouse trap. Total sales for the current year is
$325,000. The company expects its sales to go up to $500,000 in five years. What is the
expected growth rate in sales for this firm? (Round to the nearest percent.)
A)
9%
B)
11%
C)
6%
D)
12%
Ans:
A