Multiple choice

1) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

A. 6%

B. 5%

C. 7%

D. 8%

2) The present value of a single future sum

A. increases as the number of discount periods increase

B. is generally larger than the future sum

C. depends upon the number of discount periods

D. increases as the discount rate increases

3) Which of the following is considered to be a spontaneous source of financing?

A. Operating leases

B. Accounts receivable

C. Inventory

D. Accounts payable

4) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%.

Initial outlay = $450

Cash flows:

Year 1 = $325

Year 2 = $65

Year 3 = $100

A. 3.43 years

B. 3.17 years

C. 2.88 years

D. 2.6 years