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Exam 5: Discounted Cash Flow Valuation

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Question 41

Multiple Choice

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The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?

A) compound interest valuation
B) interest on interest computation
C) discounted cash flow valuation
D) present value interest factoring
E) complex factoring

F) B) and E)
G) None of the above

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Question 42

Multiple Choice

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Your grandmother has promised to give you $5,000 when you graduate from college.She is expecting you to graduate two years from now.What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now?

A) remains constant
B) increases
C) decreases
D) becomes negative
E) cannot be determined from the information provided

F) A) and B)
G) B) and E)

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Question 43

Multiple Choice

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You want to have $25,000 saved 6 years from now to buy a house.How much less do you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent on your savings? Today's deposit is the only deposit you will make to this savings account.

Suppose that the first comic book of a classic series was sold in 1954.In 2000, the estimated price for this comic book in good condition was about $340,000.This represented a return of 27 percent per year.For this to be true, what was the original price of the comic book in 1954?

At an interest rate of 10 percent and using the Rule of 72, how long will it take to double the value of a lump sum invested today? How long will it take after that until the account grows to four times the initial investment? Given the power of compounding, shouldn't it take less time for the money to double the second time?

Tracy invested $1,000 five years ago and earns 4 percent interest on her investment.By leaving her interest earnings in her account, she increases the amount of interest she earns each year.The way she is handling her interest income is referred to as which one of the following?

Which one of the following variables is the exponent in the present value formula?

You own a classic automobile that is currently valued at $150,000.If the value increases by 6.5 percent annually, how much will the automobile be worth ten years from now?