1. Find the present value of an ordinary annuity of $5,000 per annum for 4 years if the interest rate is 8% per annum.
a. The present value is $20,000.
b. The present value is $33,663.72.
c. None of the other answers are true.
d. The present value is $16,560.63.
2. Your firm is considering a project that will cost $4.55 million upfront, generate cash flows of $5 million per year for three years, and then have a cleanup and shutdown cost of $6 million in the fourth year. Assume a discount rate of 10% per annum, what is the NPV of this project?
a. None of the other answers are true.
b. The NPV of this project is $3.44 million.
c. The NPV of this project is $10.89 million.
d. The NPV of this project is $3.34 million.
3. What is the effective annual interest rate corresponding to a nominal interest rate of 8% per annum, compounding quarterly?
a. None of the other answers are true.
b. The effective annual interest rate is 8%.
c. The effective annual interest rate is 7.5%.
d. The effective annual interest rate is 8.24%.