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Chapter 9 pt 2

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Preguntas del test (10)

  1. 1The 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.
    1. AThe key to the effectiveness of this measure is that the discounting process automatically recognizes the opportunity cost of capital.
    2. BThe key to the effectiveness of this measure is that the discounting process automatically doesnt recognizes the opportunity cost of capital.
  2. 2An NPV of --- means the project just earns its opportunity cost rate.
    1. Aone
    2. Bzero
  3. 3a -------- NPV indicates that the project has positive financial value after opportunity costs are considered.
    1. Apositive
    2. Bnegative
  4. 4Rate 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%.
    1. Arate of return often is called internal rate of return (IRR).
    2. Brate of return often is called internal rate of return (EAS).
  5. 5Rate of ReturN

    it is the percentage return expected on the investment.

    EXPECTED
    1. AVerdadero
    2. BFalso
  6. 6intra 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.
    1. AThe future value of an investment is larger than under annual compounding.
    2. BThe present value of an investment is smaller than under annual compounding.
    3. CInterest is earned on interest during the year (more frequently).
  7. 7EAR is the annual rate which causes the PV to grow to the same FV as under intra-year compounding.
    1. AEAR is the annual rate
    2. BEAR is thenot annual rate
  8. 8The EAR Formula

    EAR = 1 + - 1.0
    1. AVerdadero
    2. BFalso
  9. 9nvestment 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.
    1. AReturns can be measured either in dollar terms or in rate of return term
    2. BReturns cannot be measured either in dollar terms or in rate of return term
  10. 10Amortization schedule is a table that
    breaks down the fixed payment of an
    amortized loan into its principal and
    Interest components.
    1. Adoesnt break down
    2. Bbreak down

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