Practice Quiz Chapter 14

. Please see the PDF attachment to answer this question. The following data indicate the price indexes of lumber and wood products for the following 4-year period (base period 1997=100). Calculate the average annual inflation rate over the 2002-2005 period and estimated lumber and wood price indexes in 2009.

a) 2.03%; 107.19

b) 1.27%; 108.25

c) 2.03%; 108.25

d) 1.27%; 107.19

. An annuity provides for 5 consecutive end-of-year payments of $3,200.The average general inflation rate is estimated to be 4% annually, and the market interest rate is 10% annually. What is the annuity worth in terms of a single equivalent amount of today's (actual) dollars?

a) $12130.56

b) $14245.76

c) $14231.22

d) $12788.92

. A series of 5 annual constant dollar payments beginning with $4,000 at the end of the first year is growing at the rate of 6% per year (the base year is current year). If the market interest rate is 12% per year and the general inflation rate is 4%, find the present worth of this series of payments, based on constant-dollar analysis.

a) $16556.55

b) $17998.88

c) $14556.91

d) $13389.22

. The salary of Statesman A in 2013 is about $44,000. Statesman B with the same position received $27,000 in 1970. Given inflation and changing value of money, compare the statesmen's salaries. Suppose the consumer price indexes for years 2013 and 1970 are 15.4 and 108.7, respectively.

a) Statesman A's salary is lower

b) Statesman B's salary is lower

c) They both receive the same amount

d) Not possible to compare

. Please see the PDF attachment to answer this question. VentureTech Ltd. considers a new project. The revenues and costs of the table are given in actual dollars. The firm demands a real rate of return on its project of 18%. Given the inflation rate is 3% and ignore taxes. Determine the firm's rate of return on its project in current price.

a) 13%

b) 18%

c) 23%

d) 23.9%

. Please see the PDF attachment to answer this question. VentureTech Ltd. considers a new project. The revenues and costs of the table are given in actual dollars. The firm demands a real rate of return on its project of 18%. Given an inflation rate of 3% and ignoring taxes, determine the present value of the net cash flows in Year 5 in actual dollars.

a) $50,003

b) $67,297

c) $114,395

d) $146,000

. Please see the PDF attachment to answer this question. VentureTech Ltd. considers a new project. The revenues and costs of the table are given in actual dollars. The firm demands a real rate of return on its project of 18%. Given an inflation rate of 3% and ignoring taxes, determine the present value of net cash flows in Year 8 in real dollars.

a) $110,571

b) $114,395

c) $117,093

d) $173,000

. Please see the PDF attachment to answer this question. VentureTech Ltd. considers a new project. The revenues and costs of the table are given in actual dollars. The firm demands a real rate of return on its project of 18%. Given an inflation rate of 3% and ignoring taxes, determine the net present worth of the project in actual dollars.

a) $1,173

b) $17,217

c) $123,522

d) $268,604

. Please see the PDF attachment to answer this question. VentureTech Ltd. considers a new project. The revenues and costs of the table are given in actual dollars. The firm demands a real rate of return on its project of 18%. Given an inflation rate of 3% and ignoring taxes, determine the net present worth of the project in real dollars.

a) ?$90,132

b) $1,173

c) $17,217

d) $107,826

. Determine the after-tax real interest rate given the market interest rate is 12%, the inflation rate 7%, and the tax rate 35%.

a) 0.8%

b) 1.75%

c) 3.25%

d) 6.65%

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