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Chapter 9 pt 2

Question 1 of 10

1

The key to the effectiveness of this measure is that the discounting process automatically recognizes the opportunity cost of capital.
An NPV of zero means the project just earns its opportunity cost rate.
A positive NPV indicates that the project has positive financial value after opportunity costs are considered.

Select one of the following:

  • The key to the effectiveness of this measure is that the discounting process automatically recognizes the opportunity cost of capital.

  • The key to the effectiveness of this measure is that the discounting process automatically doesnt recognizes the opportunity cost of capital.

Explanation

Question 2 of 10

1

An NPV of --- means the project just earns its opportunity cost rate.

Select one of the following:

  • one

  • zero

Explanation

Question 3 of 10

1

a -------- NPV indicates that the project has positive financial value after opportunity costs are considered.

Select one of the following:

  • positive

  • negative

Explanation

Question 4 of 10

1

Rate of Return (Cont.)

In capital investment analyses, the rate of return often is called internal rate of return (IRR).
In essence, it is the percentage return expected on the investment.
To interpret the rate of return, it must be compared to the opportunity cost of capital. In this case 10% versus 8%.

Select one of the following:

  • rate of return often is called internal rate of return (IRR).

  • rate of return often is called internal rate of return (EAS).

Explanation

Question 5 of 10

1

Rate of ReturN

it is the percentage return expected on the investment.

EXPECTED

Select one of the following:

  • True
  • False

Explanation

Question 6 of 10

1

intra year compounding

When compounding occurs intra-year, the following occurs.
Interest is earned on interest during the year (more frequently).
The future value of an investment is larger than under annual compounding.
The present value of an investment is smaller than under annual compounding.

Select one or more of the following:

  • The future value of an investment is larger than under annual compounding.

  • The present value of an investment is smaller than under annual compounding.

  • Interest is earned on interest during the year (more frequently).

Explanation

Question 7 of 10

1

EAR is the annual rate which causes the PV to grow to the same FV as under intra-year compounding.

Select one of the following:

  • EAR is the annual rate

  • EAR is thenot annual rate

Explanation

Question 8 of 10

1

The EAR Formula

EAR = 1 + - 1.0

Select one of the following:

  • True
  • False

Explanation

Question 9 of 10

1

nvestment Returns

The financial performance of an investment is measured by its return.
Time value analysis is used to calculate investment returns (ROI).
Returns can be measured either in dollar terms or in rate of return terms.
Assume that a hospital is evaluating a new MRI. The project’s expected cash flows are given on the next slide.

Select one of the following:

  • Returns can be measured either in dollar terms or in rate of return term

  • Returns cannot be measured either in dollar terms or in rate of return term

Explanation

Question 10 of 10

1

Amortization schedule is a table that
breaks down the fixed payment of an
amortized loan into its principal and
Interest components.

Select one of the following:

  • doesnt break down

  • break down

Explanation

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