# MBA Corporate Finance Quiz 2

 A perpetuity differs from an annuity because:Select one:a. perpetuity payments vary with the rate of inflation.b. perpetuity payments vary with the market rate of interest.c. perpetuity payments are variable while annuity payments are constant.d. perpetuity payments never cease. e. annuity payments occur at irregular intervals of time. D. Perpetuity payments never cease. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.Select one:a. ordinary annuities; early annuitiesb. late annuities; straight annuitiesc. straight annuities; late annuitiesd. annuities due; ordinary annuitiese. ordinary annuities; annuities due E. Ordinary annuities; annuities due The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:Select one:a. cash period.b. net working capital period.c. payback period. d. profitability index.e. discounted payback period. C. Payback period The net present value of a project is equal to the:Select one:a. present value of the future cash flows.b. present value of the future cash flows minus the initial cost. c. future value of the future cash flows minus the initial cost.d. future value of the future cash flows minus the present value of the initial cost.e. sum of the project’s anticipated cash flows. B. Present value of the future cash flows minus the initial cost. Using the internal rate of return method, a conventional investment project should be accepted if the internal rate of return is:Select one:a. equal to the discount rate.b. greater than the discount rate. c. less than the discount rate.d. negative.e. positive. B. Greater than the discount rate. What is the net present value of a project with an initial cost of \$36,900 and cash inflows of \$13,400, \$21,600, and \$10,000 for Years 1 to 3, respectively? The discount rate is 13 percent. Select one:a. -\$1195.12 b. -\$287.22c. -\$1,350.49d. \$204.36e. \$797.22 A. -\$1195.12 What is the present value of \$6,811 to be received in one year if the discount rate is 6.5 percent?Select one:a. \$6,395.31 b. \$6,023.58c. \$6,643.29d. \$6,671.13e. \$7,253.72 A. \$6,395.31 Which one of the following statements is true?Select one:a. You must know the discount rate to compute the NPV but you can compute the IRR without having a discount rate. b. You must have a discount rate to compute, NPV, IRR, PI, and discounted payback.c. Payback uses the same discount rate as that applied in the NPV calculation.d. Financing projects can only ever have one IRR.e. Discounted payback is a better method than payback and is more frequently used in practice. a. You must know the discount rate to compute the NPV but you can compute the IRR without having a discount rate. You are comparing two investment options, each of which will provide \$15,000 of total income. Option A pays five annual payments starting with \$5,000 the first year followed by four annual payments of \$2,500 each. Option B pays five annual payments of \$3,000 each. Which one of the following statements is correct given these two investment options?Select one:a. Both options are of equal value today.b. Given a positive rate of return, Option A is worth more today than Option B. c. Option B has a higher present value than Option A given a positive rate of return.d. Option B has a lower present value than Option A given a zero rate of return.e. Option A is preferable because it is an annuity due. b. Given a positive rate of return, Option A is worth more today than Option B. You just won the lottery! As your prize you will receive \$1,500 a month for 150 months. If you can earn 7 percent, compounded monthly, on your money, what is this prize worth to you today?Select one:a. \$137,003.69b. \$149,676.91 c. \$137,962.77d. \$148,104.26e. \$150,723.76 B. \$149,676.91
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