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XAppendixII - Compound Interest and Concept of Present Value

XAppendixII - Compound Interest and Concept of Present...

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Appendix II: Compound Interest and the Concept of Present Value MULTIPLE CHOICE QUESTIONS 1. The main idea behind the time value of money is that: A. cash flows received in the distant future are less valuable than cash flows received in the near-term future. B. cash received in year 3, say, $80,000, has the same value as $40,000 received in year 3 plus $40,000 received in year 4. C. cash flows received in different years are treated as equal in value. D. cash payments made in the future have the same value as payments made today. E. timing considerations have little value in decision making. Answer: A LO: 1 Type: RC 2. The procedure used to compute the future value of a series of cash flows is known as: 3. Norton Company has a 12% interest rate. If the firm invests $60,000 today, how much will have accumulated by the end of eight years? 4. Lawson Company invests $60,000 today and has $148,560 by the end of eight years. What is the firm's interest rate? Appendix II 81
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5. The procedure used to compute the present value of a series of cash flows is known as: A. compounding. B. the annuity method. C. discounting. D. the present-cost approach. E. indexing. Answer: C LO: 2 Type: RC 6. All other things being equal, which of the following would be the most attractive to an investor? 7. All other things being equal, which of the following would be most attractive to an investor?
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