Exam 2

Question 1

What is the difference between the PV of an investment’s future CF and its initial cost

Answer 1

NPV

Question 2

Concerned about quickly recovering its initial investment than it is about the amount of value created, firm would want to use what method of capital project analysis?

Answer 2

Payback

Question 3

One reason payback may be employed to analyze independent capital projects is because

Answer 3

it is easy & quick to calculate

Question 4

Length of time required for an investment to generate CF sufficient to recover the initial cost of the investment

Answer 4

Payback period

Question 5

An investment is acceptable if the payback period

Answer 5

is less than some pre-specified period of time

Question 6

The IRR for a project will increase if

Answer 6

the initial cost of the project can be reduced

Question 7

What, when employed as a project’s discount rate, make the NPV of the project exactly equal to )?

Answer 7

IRR

Question 8

What are the fed’s 2 major goals?

Answer 8

keep inflation low & support full employment

Question 9

What is the target range for the inflation rate?

Answer 9

2%

Question 10

What is the target range for the unemployment rate?

Answer 10

4 to 5%

Question 11

Why did the fed start cutting rates?

Answer 11

there was a slow in job growth and they want to boost the job market

Question 12

What might happen to interest rates in bond Fed is going to continue to cut the rates?

Answer 12

Benchmark decrease, everyone else decrease

Question 13

Federal funds rates controls

Answer 13

how much money exists/flows in the economy

less money is bad because cost of borrowing is very high

Question 14

For a given time period, the higher the interest rate

Answer 14

the smaller the PV

Question 15

For a given interest rate, the longer the time period,

Answer 15

the lower the PV

Question 16

Finding the PV is discounting, and it is the reverse of

Answer 16

compounding