Managerial Economics & Business Strategy 10th Edition by Michael Baye Test bank
the foregone interest that could be earned if you had the money today.
the taxes paid on any earnings.
the value of $10 relative to the total income of that person.
the value of $10 relative to the total income of all persons.
References
Multiple Choice Difficulty: 01 Easy Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
13.
Award: 1.00 point
14.
Award: 1.00 point
If the interest rate is 5 percent, what is the present value of $10 received one year from now?
$9.50
$10.05
$9.52
$9.77
References
Multiple Choice Difficulty: 02 Medium Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?
$1,200
$909
$950
$1,100
References
Multiple Choice Difficulty: 01 Easy Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
15.
Award: 1.00 point
16.
Award: 1.00 point
If you put $10,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?
$11,000.
$12,000.
$909.
$1,100.
References
Multiple Choice Difficulty: 01 Easy Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
If the interest rate is 5 percent, the present value of $200 received at the end of five years is
$121.34.
$156.71
$176.41.
$132.62.
References
Multiple Choice Difficulty: 03 Hard Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
17.
Award: 1.00 point
18.
Award: 1.00 point
When dealing with present value, a higher interest rate
does not affect the present value of the future amount.
increases the present value of a future amount.
decreases the present value of a future amount.
only changes the costs of the project.
References
Multiple Choice Difficulty: 01 Easy Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year,
$2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the
above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present
value of purchasing the tractor?
$6,764
$9,362
$18,362
$6,501.65
References
Multiple Choice Difficulty: 02 Medium Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
19.
Award: 1.00 point
20.
Award: 1.00 point
A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent.
Assuming these profits are realized at the end of each year, what is the present value of these future profits?
$325,816.49
$376,741.64
$400,000.85
$346,510.56
References
Multiple Choice Difficulty: 02 Medium Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
A firm will maximize the present value of future profits by maximizing current profits when the
growth rate in profits is constant.
growth rate in profits is larger than the interest rate.
interest rate is larger than the growth rate in profits and both are constant.
growth rate and interest rate are constant and equal.
References
Multiple Choice Difficulty: 02 Medium Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
21.
Award: 1.00 point
22.
Award: 1.00 point
Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to
continue forever. If current profits are $1,000, what is the value of the firm?
$31,000
$30,000
$26,500
$35,000
References
Multiple Choice Difficulty: 03 Hard Learning Objective: 01-05 Apply present value
analysis to make decisions and value assets.
To maximize profits, a firm should continue to increase production of a good until
total revenue equals total cost.
profits are zero.