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Exam 5: Discounted Cash Flow Valuation

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Question 41

Multiple Choice

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Oscar's Kennels spent $130,000 to refurbish its current facility.The firm borrowed 70 percent of the refurbishment cost at 4.5 percent interest for five years.What is the amount of each monthly payment?

A) $1,985.25
B) $1,444.54
C) $2,423.59
D) $1,696.51
E) $1,895.32

F) None of the above
G) B) and D)

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Question 42

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Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan.The original loan amount was $72,000 at an APR of 8.15 percent.How much of the third loan payment is interest?

A) $5,868.00
B) $4,725.89
C) $4,896.48
D) $5,009.16
E) $4,687.53

F) B) and E)
G) A) and E)

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Question 43

Multiple Choice

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London Motors will sell a $24,000 car for $335 per month for 60 months.What is the interest rate?

Lionheart Trucking recently purchased a new truck costing $178,000.The firm financed this purchase at 6.6 percent interest with monthly payments of $2,400.How many years will it take the firm to pay off this debt?

Cindy is taking out a loan today.The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today.Which type of loan is this?

Your grandfather started his own business 52 years ago.He opened an investment account at the end of his third month of business and contributed $x.Every three months since then, he faithfully saved another $x.His savings account has earned an average rate of 5.73 percent annually.Today, his account is valued at $289,209.11.How much did your grandfather save every three months assuming he saved the same amount each time?

Assume all else is equal.When comparing savings accounts, you should select the account that has the:

The manager of Steve's Audio has approved Daisy's application for 24 months of credit with maximum monthly payments of $45.If the APR is 19.2 percent, what is the maximum initial purchase that Daisy can buy on credit?

A 30-year home mortgage is a classic example of:

You have just won the lottery! You can either receive $183,555 per year for 20 years or $2,300,000 as a lump sum payment today.What is the interest rate on the annuity option?

Best's Fried Chicken just took out an interest-only loan of $50,000 for three years with an interest rate of 8.15 percent.Payments are to be made at the end of each year.What is the amount of the payment that will be due at the end of Year 3?

George is considering an investment that will pay $3,250 a year for eight years, starting one year from today.What is the maximum amount he should pay for this investment if he desires a rate of return of 8.0 percent?

The manager of Furniture For Less has approved Mac's application for 36 months of credit with maximum monthly payments of $32.If the APR is 20.2 percent, what is the maximum initial purchase that Mac can buy on credit?

What is the value today of $3,600 received at the end of each year for eight years if the first payment is paid at the end of Year 4 and the discount rate is 12 percent?

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely.These annual scholarships are:

So you can retire early, you have decided to start saving $500 a month starting one month from now.You plan to retire as soon as you can accumulate $1 million.If you can earn 5 percent on your savings, how many years will it be before you can retire?

Krystal plans to save $500 at the end of Year 1, $600 at the end of Year 2, and $800 at the end of Year 3.If she earns 2.8 percent on her savings, how much money will she have saved at the end of Year 3?

Postal Express is considering the purchase of a new sorting machine.The sales quote consists of quarterly payments of $37,200 for five years at 7.6 percent interest.What is the purchase price?

Perpetuities have:

At the end of this month, Les will start saving $200 a month for retirement through his company's retirement plan.His employer will contribute an additional $.50 for every $1.00 that he saves.If he is employed by this firm for 30 more years and earns an average of 8.25 percent on his retirement savings, how much will he have in his retirement account 30 years from now?