Fundamentals of Corporate Finance 3e Test Bank
58.
Which of the following statements is true of annual percentage rate (APR)?
A)
The APR is similar to quoted interest rate which is a simple annual rate.
B)
The APR calculation adjusts for the effects of compounding and, hence, the time value
of money.
C)
The APR is the true cost of borrowing and lending.
D)
The APR takes compounding into account.
Ans:
A
AICPA: Measurement
59.
Which of the following statements is true of annual percentage rate (APR)?
A)
The Truth-in-Savings Act was passed by Congress to ensure that the true cost of credit
was disclosed to consumers.
B)
The Truth-in-Lending Act was passed to provide consumers an accurate estimate of the
return they would earn on an investment.
C)
The Truth-in-Savings Act and Truth-in-Lending Act require by law that the APR be
disclosed on all consumer loans and savings plans.
D)
The annual percentage rate (APR), and not the effective annual interest rate (EAR),
represents the true economic interest rate.
Ans:
C
AICPA: Measurement
60.
What is the appropriate interest rate to use when making future or present value calculations?
A)
The effective annual interest rate (EAR)
B)
The annual percentage rate (APR)
C)
The quoted interest rate
D)
The simple interest
Fundamentals of Corporate Finance 3e Test Bank
61.
Krysel Inc. is expecting a new project to start producing cash flows, beginning at the end of this
year. They expect cash flows to be as follows:
1
2
3
4
5
$663,547
$698,214
$795,908
$798,326
$755,444
If they can reinvest these cash flows to earn a return of 9.2 percent, what is the future value of
this cash flow stream at the end of five years? (Round to the nearest dollar.)
A) $4,368,692
B) $4,429,046
C) $4,468,692
D) $4,529,046
Fundamentals of Corporate Finance 3e Test Bank
62.
Phosfranc Inc., is expecting the following cash flows starting at the end of the year—$133,245,
$152,709, $161,554, and $200,760. If their opportunity cost is 9.4 percent, find the future value
of these cash flows. (Round to the nearest dollar.)
A)
$734,731
B)
$756,525
C)
$734,231
D)
$776,252
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
63.
Robert White will receive from his investment cash flows of $4,450, $4,775, and $5,125. If he
can earn 7 percent on any investment that he makes, what is the future value of his investment
cash flows at the end of three years? (Round to the nearest dollar.)
A)
$15,329
B)
$15,427
C)
$16,427
D)
$14,427
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
64.
Scottie Barnes has invested in an investment that will pay him $6,400, $6,450, $7,225, and
$7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of
the cash flows he will receive? (Round to the nearest dollar.)
A)
$27,150
B)
$32,020
C)
$30,455
D)
$31,770
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
65.
Global Shippers Inc. has forecast earnings of $1,233,600, $1,345,900, and $1,455,650 for the
next three years. What is the future value of these earnings if the firm’s opportunity cost is 13
percent? (Round to the nearest dollar.)
A)
$4,214,360
B)
4,551,701
C)
$3,900,865
D)
$4,362,428
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
66.
Damien McCoy has loaned money to his brother at an interest rate of 5.85 percent. He expects
to receive $987, $1,012, $1,062, and $1,162 at the end of the next four years as complete
repayment of the loan with interest. How much did he loan out to his brother? (Round to the
nearest dollar.)
A)
$3,785
B)
$3,757
C)
$3,657
D)
$3,685
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
67.
Newship Inc. has borrowed from its bank at a rate of 8 percent and will repay the loan with
interest over the next five years. Its scheduled payments, starting at the end of the year are as
follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value
of these payments? (Round to the nearest dollar.)
A)
$2,735,200
B)
$2,989,351
C)
$2,431,224
D)
$2,815,885
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
68.
David Stephens has made an investment that will pay him $11,455, $16,376, and $19,812 at the
end of the next three years. His investment was to fetch him a return of 14 percent. What is the
present value of these cash flows? (Round to the nearest dollar.)
A)
$37,712
B)
$36,022
C)
$41,675
D)
$39,208
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
69.
Nutech Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000,
and $242,000—over the next five years. If the company’s opportunity cost is 15 percent, what
is the present value of these cash flows? (Round to the nearest dollar.)
A)
$429,560
B)
$485,097
C)
$480,906
D)
$477,235
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
70.
Helen Ashley is expecting cash flows of $50,000, $75,000, $125,000, and $250,000 from an
inheritance over the next four years. If she can earn 11 percent on any investment that she
makes, what is the present value of her inheritance? (Round to the nearest dollar.)
A)
$361,998
B)
$414,454
C)
$412,372
D)
$434,599
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
71.
Ransport Company has made an investment in another company that will guarantee it a cash
flow of $37,250 each year for the next five years. If the company uses a discount rate of 15
percent on its investments, what is the present value of this investment? (Round to the nearest
dollar.)
A)
$101,766
B)
$124,868
C)
$251,154
D)
$186,250
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
72.
Ryan Campbell has invested in a fund that will provide him a cash flow of $11,700 for the next
20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow
stream? (Round to the nearest dollar.)
A)
$234,000
B)
$132,455
C)
$110,721
D)
$167,884
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
73.
Moore’s Inc. will be making lease payments of $3,895.50 for a 10-year period, starting at the
end of this year. If the firm uses a 9 percent discount rate, what is the present value of this
annuity? (Round to the nearest dollar.)
A)
$23,250
B)
$29,000
C)
$25,000
D)
$20,000
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
74.
Graciela Treadwell won a lottery. She will have a choice of receiving $25,000 at the end of
each year for the next 30 years, or a lump sum today. If she can earn a return of 10 percent on
any investment she makes, what is the minimum amount she should be willing to accept today
as a lump-sum payment? (Round to the nearest hundred dollars.)
A)
$750,000
B)
$334,600
C)
$212,400
D)
$235,700
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
75.
Insulor Inc. is expecting cash flows of $67,000 at the end of each year for the next five years. If
the firm’s discount rate is 17 percent, what is the present value of this annuity? (Round to the
nearest dollar.)
A)
$214,356
B)
$241,653
C)
$278,900
D)
$197,776
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
76.
Lloyd Harris is planning to invest $3,500 every year for the next six years in an investment
paying 13 percent annually. What will be the amount he will have at the end of the six years?
(Round to the nearest dollar.)
A)
$21,000
B)
$29,129
C)
$24,670
D)
$26,124
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
77.
Shaun Barringer has started on his first job. He plans to start saving for retirement. He will
invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10
percent. How much will Shaun have at the end of 45 years? (Round to the nearest dollar.)
A)
$2,667,904
B)
$3,594,524
C)
$1,745,600
D)
$5,233,442
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
78.
John Mason decided to save $2,250 at the end of each of the next three years to pay for a
vacation. If he invests it at 8 percent, how much will he have at the end of three years? (Round
to the nearest dollar.)
A)
$7,304
B)
$7,403
C)
$6,297
D)
$7,010
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
79.
Barbara Lakey is saving to buy a new car in four years. She will save $5,500 at the end of each
of the next four years. If she invests her savings at 7.75 percent, how much will she have after
four years? (Round to the nearest dollar.)
A)
$22,000
B)
$23,345
C)
$27,556
D)
$28,692
Ans:
D