Chapter 7,8 quiz question.docx

Chapter 7,8 quiz question.docx - Chapter 7 quiz question 1...

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Chapter 7 quiz question 1. If the market interest rate is 13% and the general rate of inflation is 4%, what is the real interest rate? 2. What approaches can be taken to an NPV investment appraisal in inflationary condition? 3. What is a real cash flow? 4. Rent is paid each year. This year’s rent - €10 000 – has just been paid. How much rent will need to be paid in 2 years’ time if: a) The rent remains constant in real terms? b) The rent remains constant in money term? 5. A company owns a machine that is currently lying unused in the factor. The machine was bought 5 years ago at a cost of £60 000 and has now been depreciated down to a book value of £10 000. If could be sold now for £3000. Alternatively it could be rented out for 1 year at £2500. The company chief engineer belief the machine will be totally obsolete in 12-months’ time and would then have a scrap value of £800. The company is considering using the machine to undertaker a 1 year project. If it did, the machine’s scrap value at the end of the year, net of dismantling costs, would be zero. Ignoring the
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