Multiple choice

1.  If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate?  

a. 15% 

b. 20% 

c. 25% 

d. 50% 

2. The present value formula for one period cash flow is:  

a. PV = C1(1 + r) 

b. PV = C1/(1 + r) 

c. PV = C1/r 

d. None of the above 

3. The net present value formula for one period is: I) NPV = C0+ [C1/(1 + r)]; II) NPV = PV - required investment; and III) NPV = C0/C1  

a. I only 

b. I and II only 

c. III only 

d. None of the above 

4. An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV of the project at a discount rate of 20%?  

a. $176,000 

b. $80,000 

c. $0 (zero) 

d. None of the above