Qs.time Value of Money

8/7/2019 Qs.time Value of Money

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Question and Answer

Samples and Techniques

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Present value is multiplied by the

compound factor to find the future value .

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Actual percentage rate and annual % yield

are synonymous.

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In the case of annuity due cash flow occurs

at the beginning of each time period

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There are two methods by which time

value of money can be calculated.

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Under the method of discounting we

reckon the time value of money now.

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Annuity is the term used to describe a

series of periodic flow of equal Amounts,

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In case of regular annuity cash flow occurs

at the beginning of each time period

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Under the method of compounding we find

present value of all cash flows.

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The net present value is equal to the sum of presentvalues of all future inflows

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What is an annuity?What are the different

types?

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Discuss various techniques of capital

budgeting.

cn

Microsoft Office

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What is the future value Of Rs

1000/=deposited annually for 4 years

@10%

None of the above

5000

Rs 6705

Rs610

5

Rs 4641

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What is the future value Of Rs

1000/=deposited for 4 years @10%

None of the above

5000

Rs 6705

Rs610

5

Rs 1464

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What is the present value Of Rs

1000/=receivable at the end of every

year for 4 years @10%

None of the above

5000

Rs 6705

Rs 4000 approxly

Rs 3100 approxly

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What is the present value Of Rs

10000/=receivable at the end of third

year discounted @10%

None of the above

5000

Rs 6705

Rs 4000 approxly

Rs7521 approxly

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In IRR the cash inflows are assumed

to be reinvested in the project at

None of the above

Risk free rate

Internal rate of return

Marginal cost of capital

At cost of capital

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For a project the benefit cost ratio

is equal to one (PV=I) then the

None of the above

IRR > THE DISCOUNTED RATE

Internal rate of return will be > 1

IRR < DISCOUNT RATE

IRR = DISCOUNT RATE

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Which of the following is a non

discounting technique for appraising a

project

None of the above

THE DISCOUNTED cash flow method

Internal rate of return

The NPV method

Pay Back Period

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Match the following:

Rule of 72

NPV

Future value

annuity

risk

Standard deviation

compounding

Doubling period

DISCOUNTING

Uniform cash flow

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Computing future value involves

None of the above

Average of a & b

Annuity formula

Simple interest formula

Compound interest rate formula

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An annuity involves

None of the above

Average of a & b

Multiple cash flows

Different cash flows for different periods

Uniform cash flow during different periods

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Which of the following is /are true

If BCR > 1 & NBCR< 0 ACCEPT THE PROJECT

IF BCR< 1 & NBCR> 0 REJECT THE PROJECT

If BCR0 REJECT THE PROJECT

If BCR> 1 & NBCR> 0 ACCEPT THE PROJECT

Both b& d

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What will happen to NPV of a project if fixed cost is

increased from 2000 to 3000, if the firm is profitable

and is in 35% tax bracket, and employs 12% cost of

capital

NPV Decreases by Rs 1000

NPV INCREASES BY 650

NPV decreases by 650

NPV increases by Rs 1000

NPV DECREASES BY 58.4%

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25/30

An insurance company offers you,to pay Rs 25,000/=every

year for 6 years,if you pay Rs 100,000/= today.compute

the interest rate

PVIFA=100,000/25,000= 4

READ PVIFATABLECORRESPONDING TO 6YEARS .RATELIES BETWEEN

THE VALUE

12- 14 THE

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1)Pay back period

2)Accounting rate of return

3)NPV

4)IRR5)CBA


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year Project -1 Rs Project-2 Rs For discount

rates

0 (300,000) (300,000) 10%

1 60,000 130,000 12%2 100,000 100,000 14%

3 120,000 80,000 15%

4 150,000 60,000 16%

total 130,000 60,000

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Evaluate : 2 mutually exclusive projects


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Period/rate 10% 12% !4% 15%

1 0.909 .893 .877 .870

2 0.826 .797 .770 .756

3 0.751 .712 .675 .658

4 0.683 .636 .592 .572

5 0.621 .567 .519 .497

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Present value table


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Discount rate% NPV-1 NPV-2 RECOMMENDAT

ION

10 36,622 29,180 A

12 20,390 17,658 A14 5,318 6,288 B

15 (1826) 1654 B

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The results


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YEAR CASH FLOW 15% 16%

0 (100000)

1 30,000

2 30,000

3 40,000

4 45,000

100,802 98641

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IRR

SINCE NPV IS NEGATIVE AT 16% THE IRR LIES BETWEEN 15 & 16%

Approximately the IRR =15+ (802/802+1359)=15+0.37=15.37

Qs.time Value of Money

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