TIF_ch04 - Test Bank Chapter 4 ACCOUNTING CASH FLOWS AND...

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Test Bank Chapter 4: ACCOUNTING, CASH FLOWS, AND TAXES EFS I. True or False (Definitions and Concepts) T 1. In your text, the notation m is the number of compounding periods per year. F 2. APY is the annual percentage rate (or nominal annual rate) and is r times m . (FALSE: Should be APR instead of APY.) T 3. The future value formula is: FV = PV(1 + r) n where (1 + r) n is the future-value factor (FVF). T 4. NPV is the present value of the expected future cash flows minus the cost. T 5. The expected rate of return is the rate you expect to earn if you make an investment. F 6. The required rate of return is the rate of return actually earned on an investment over a period of time. (FALSE: Should be realized instead of required.) F 7. The realized rate of return is the return that exactly reflects the riskiness of the expected future cash flows. (FALSE: Should be required instead of required.) T 8. Cash inflows are positive while cash outflows are negative. T 9. An installment-debt contract, such as a bank loan for buying a car or house, is an annuity. T 10. The present value of an annuity (PVA n ) is equal to the future value of an annuity discounted back to time zero. F 11. A deferred or delayed annuity is an annuity where the value of the annuity is calculated at a point in time where t = 0. (FALSE: Should be where t > 0 instead of where t = 0.) F 12. The formula, YTM = {CPN + [(F – B 0 ) / N]} / [(F + 2B 0 ) / 3], is used to estimate the value of a bond. (FALSE: Should be yield of a bond instead of value of a bond.) T 13. Special financing refers to sales promotion for consumer goods in which there are reduced financing costs. T 14. The value of a postponed annuity can be calculated by subtracting out two separate annuities. T 15. A perpetuity is similar to an annuity but goes on forever. II. Multiple Choice (Definitions and Concepts) a 16. Unless noted otherwise, cash outflows stemming from a project’s cost occur at time . a. zero b. one
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c. infinity d. none of these b 17. The present value formula is: PV = FV[1 / (1 + r) n ]. What do we call the component [1 / (1 + r) n ]? a. annuity factor b. present value factor c. future value factor d. a 18. A(n) involves a series of identical cash flows that are expected to occur regularly each period for a finite number of periods. a. annuity b. perpetuity c. flexible rate loan d. net present value c 19. The is the true or "effective" annual rate of return. a. APR b. nominal rate of return c. APY d. realized rate of return d 20. The present value factor is the of the future value factor a. IRR b. multiply c. reverse d. inverse a 21. The loan amortization schedule reveals that the amount of interest declines each period since the gradually becomes smaller. a.
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TIF_ch04 - Test Bank Chapter 4 ACCOUNTING CASH FLOWS AND...

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