# App14A - Appendix 14A, The Concept of Present Value LO7:...

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Appendix 14A, The Concept of Present Value Question Type Difficulty LO1: Net present value LO2: Internal rate of return LO3: Uncertain cash flows LO4: Preference ranking LO5: Payback LO6: Simple rate of return LO7: (Appendix 14A) Present value concepts LO8: (Appendix 14C) Income tax Other topics Professional Exam Adapted ID Origin CMA/CPA origin 1 T/F M x 2/e: 13-2 Authors 2 T/F M x 3/e: 14-10 Authors 3 T/F E x 12/11/94, E E.N. 4 Conceptual M/ C M x 3/e: 14-7 Authors 5 Conceptual M/ C H x CMA 3/e: 14-21 CMA 6 Conceptual M/ C M x 5/e: 14-23 Authors 7 M/C M x 3/e: 14-18 Authors 8 M/C E x 5/e: 14-17 Authors 9 M/C E x 8/e: ATB14-26 David Keyes 10 M/C E x 10/13/2003 Single MC E3 E.N. 11 M/C H x 10/13/2003 Single MC F3 E.N. 12 M/C M x 10/13/2003 Single MC G3 E.N. 13 M/C E x 10/13/2003 Single MC H3 E.N. 14A-1

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Appendix 14A, The Concept of Present Value 14 M/C H x 10/13/2003 Single MC I3 E.N. 14A-2
Appendix 14A, The Concept of Present Value True / False Questions 1. The present value of a given sum to be received in five years is exactly twice as large as the present value of an equal sum to be received in ten years. True False 2. The higher the discount rate, the higher the present value of a given future cash flow. True False 3. The present value of a cash flow decreases as it moves further into the future. True False Multiple Choice Questions 4. An increase in the discount rate: A. will increase the present value of future cash flows. B. will have no effect on net present value. C. will reduce the present value of future cash flows. D. is one method of compensating for reduced risk. 5. The accountant of Ronier, Inc., has prepared an analysis of a proposed capital project using discounted cash flow techniques. One manager has questioned the accuracy of the results because the discount factors employed in the analysis have assumed the cash inflows occurred at the end of the year when the cash inflows actually occurred uniformly throughout each year. The net present value calculated by the accountant: A. will be in error and therefore not usable. B. will be slightly overstated but usable. C. will be slightly understated but usable. D. will produce an error the direction of which is undeterminable. 14A-3

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Appendix 14A, The Concept of Present Value 6. Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be: A. greater than under a 10% discount rate. B. less than under a 10% discount rate. C. equal to that under a 10% discount rate. D. sometimes greater than under a 10% discount rate and sometimes less; it depends on R. 7. (Ignore income taxes in this problem.) White Company's required rate of return on capital
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## This note was uploaded on 11/10/2010 for the course ACCOUNTING acc taught by Professor Sign during the Spring '10 term at S. Alabama.

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App14A - Appendix 14A, The Concept of Present Value LO7:...

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