Question 1

A jewelry manufacturer can trade 200 ounces of silver (market price $$20/oz) for 10 ounces of gold (market price 1$$,000/oz) today. What is the net value of this trade?

Accepted Answer

$6,000

Question 2

Which principle states that the value of a commodity or asset is determined by its competitive market price?

Accepted Answer

The Valuation Principle

Question 3

Suppose you win 4 tickets to a concert (market price $$30 each) or can exchange them for 2 tickets to another show (market price 50 $$each). What should you do to maximize value?

Accepted Answer

Take the 4 tickets, sell them, and buy 2 tickets to the other show

Question 4

A firm can acquire 200 barrels of oil ($$90/barrel) and 3,000 pounds of copper (3.50/$$pound) for $25,000. What is the net value of this opportunity?

Accepted Answer

$3,500

Question 5

What is an arbitrage opportunity?

Accepted Answer

A situation where a profit can be made without risk or investment

Question 6

If you invest $$1,000 today at 10% interest, what will be the value after 2 years? Use the formula FV = C$$ 	imes (1 + r)^n$.

Accepted Answer

$1,210

Question 7

A project costs $$100,000 today and returns 105$$,000 in one year. If the interest rate is 10%, what is the net value of the project in one year?

Accepted Answer

$-5,000

Question 8

What is the present value of $$15,000 received in 10 years if the interest rate is 6%? Use PV$$ = \frac{C}{(1 + r)^n}$.

Accepted Answer

$8,385.54

Question 9

XYZ Company expects $$2,000,000 in 5 years. If the interest rate is 4%, how much can they borrow today to repay the loan with this cash flow? Use PV$$ = \frac{C}{(1 + r)^n}$.

Accepted Answer

$1,643,854.21

Question 10

If the launch of a product is delayed by one year, reducing first-year revenues from $$2 billion to 1.6 $$billion, and the interest rate is 8%, what is the present value of the delayed revenue? Use $$PV = \frac{C}{(1 + r)^n}.$$

Accepted Answer

$$1.481$$ billion

Question 11

Which of the following is NOT a rule for valuing cash flows at different points in time?

Accepted Answer

Ignoring the time value of money

Question 12

If $$1,000 is invested today at 10% interest, what is the present value of 1$$,000 received in 3 years? Use $$PV = \frac{C}{(1 + r)^n}.$$

Accepted Answer

$751.31

Question 13

Which of the following best describes the 'Law of One Price'?

Accepted Answer

Identical goods must have the same price in competitive markets

Question 14

What is the effect of compounding interest over time compared to simple interest?

Accepted Answer

Compounding results in higher total interest due to earning interest on interest

Question 15

If you have $$826.45 today and invest it at 10% for 2 years, what will be the future value? Use FV = C$$ 	imes (1 + r)^n$.

Accepted Answer

$1,000

Question 16

Which of the following is the correct formula for the present value of a cash flow?

Accepted Answer

$$PV = \frac{C}{(1 + r)^n}$$

Question 17

A firm must choose between two projects. Project A has a present value of $$50,000 and Project B has a present value of 45$$,000. Which project should the firm choose?

Accepted Answer

Project A

Question 18

If the discount rate increases, what happens to the present value of a future cash flow?

Accepted Answer

It decreases

Question 19

Which of the following is a cash outflow?

Accepted Answer

A payment made today for an investment

Question 20

Why is it incorrect to simply subtract the cost today from the benefit in the future when evaluating an investment?

Accepted Answer

Because it ignores the time value of money

The Valuation Principle and the Time Value of Money in Financial Accounting

Guida di studio - Domande di pratica

Study guide - Flashcard