21.Which of the following is TRUE concerning the present value of an investment?
a.the difference between the future and present value of an investment is the annuity
b.the present value of an investment is expected to be larger than its future value
c.the present value of an investment is expected to be smaller than its future value
d.the present value of an investment is always larger than its future value
22.A company borrowed $85,356 via an 8%, 3-year loan requiring equal-sized payments at the end of every quarter (every three months). All required payments were made during the first year. What amount of interest expense did the company incur during the first 6 months of the loan and how much principal did it repay?
Loan Interest Principal Repayment
a.$3,414 $12,758
b.$3,287 $12,855
c.$2,581 $10,177
d.$1,707 $6,364
23.When a borrower obtains a bank loan at 8% interest, the rate of return earned by the bank on this loan
a.is exactly 8%
b.is more than 8%
c.is less than 8%
d.cannot be determined without more information
24.Summerville Dental Clinic is considering acquisition of sophisticated new x-ray equipment costing $100,000. The present value of expected net cash flows (except for purchase cost) from this equipment is $120,000 when discounted at 10%. From this information, we can conclude that the
a.company should reject this investment
b.expected rate of return is greater than 10%
c.life of the equipment is less than 6 years
d.net cash flows will occur evenly over the equipment's life
25.The Gold Ore Mining Company is contemplating purchase of new equipment. The machinery is expected to generate increased sales of $50,000 per year over its 5 year life. Excluding the cost of the machinery, additional operating costs are expected to be $15,000 per year. If the firm requires a minimum 12% return on its investment, what is the maximum price the company can pay for this equipment?
a.$180,239
b.$175,000
c.$126,167
d.$ 54,072
26.The Turbo Speedboat Company has just acquired new manufacturing equipment. No down payment was made, but four year-end payments of $2,400 will be required to pay for the machine. If 8% is the appropriate rate, at what amount should Turbo Speedboat Company record the new equipment on its books?
a.$7,056
b.$7,949
c.$10,814
d.$13,060
27.You have an opportunity to purchase the Waiting Line Cafe, a busy shop near your office. The owner is asking $80,000. After satisfying yourself as to the accuracy of the firm's past financial statements, you note that it generated $12,000 per year in net cash flow. You believe you could operate the business for 4 years and sell it for $50,000. What is the maximum amount you would be willing to pay for the business if you wish to earn at least a 10% return on your investment?
a.$54,641
b.$72,189
c.$80,000
d.$38,034
28.The Holiday Family Fun Center is for sale at an asking price of $400,000. The audited financial statements show that the business generates approximately $43,000 per year in net cash flow. You believe you could operate the business for 3 years and sell it for $500,000. What is the maximum amount you would be willing to pay for the business if you wish to earn at least a 10% return on your investment?
a.$629,000
b.$500,000
c.$482,590
d.$375,655
29.A business is for sale at $100,000. Discounting the expected cash inflows and expected cash outflows (except purchase price) at 12% yields an amount of $94,741. Based on this information,
a.the minimum price you should pay for the business is $94,741
b.at a purchase price of $100,000, the business is projected to earn just a little more than 12%
c.a higher discount rate would make this business opportunity more attractive
d.the investment opportunity should be rejected if a 12% return is required
30.A $10,000 loan was obtained from a bank at 12% annual interest. The loan is to be repaid in four equal year-end installments. What amount of interest revenue should be recognized by the bank for the second year of the loan?
a.$2,500
b.$1,200
c.$949
d.$668