MBA 702 MODULE 2 EXAMINATION COMPLETE
QUESTIONS AND DETAILED SOLUTIONS LATEST
UPDATE THIS YEAR JUST RELEASED
1.
A manager can receive $10,000 today or $10,000 three years from now. Assuming
positive interest rates, why is receiving the money today generally more valuable?
A. Money received today can potentially earn returns during the three-year
period
B. Future money is always subject to taxation
C. Present money automatically has greater purchasing power
D. Future payments cannot be invested
Answer: A
Rationale: The time value of money recognizes that money available today can be
invested and potentially generate additional returns before the future payment is
received.
2.
Which fundamental financial concept explains why a dollar received today
generally has a different economic value than a dollar received several years in
the future?
,A. Accounting conservatism
B. Time value of money
C. Matching principle
D. Revenue recognition
Answer: B
Rationale: Time value of money reflects the opportunity to invest current funds
and earn returns, making timing important when comparing financial amounts.
3.
An investor deposits $5,000 into an account earning 6% annually. Which concept
determines the account's value at the end of one year?
A. Present value
B. Future value
C. Economic depreciation
D. Opportunity cost only
Answer: B
Rationale: Future value measures what an amount invested today will grow to
after earning interest over a specified period.
4.
,A company expects to receive $20,000 two years from now and uses an 8%
annual discount rate. What financial concept converts that future amount into
today's equivalent value?
A. Future value
B. Present value
C. Book value
D. Salvage value
Answer: B
Rationale: Present value discounts a future cash flow back to today using the
appropriate interest or discount rate.
5.
If the annual interest rate remains positive, what generally happens to the
present value of a fixed future cash flow when the waiting period becomes
longer?
A. Present value increases
B. Present value decreases
C. Present value remains unchanged
D. Present value becomes equal to future value
Answer: B
Rationale: A future cash flow received farther into the future is discounted for
more periods, reducing its equivalent value today.
, 6.
If the discount rate increases while the future cash flow and time period remain
unchanged, what happens to its present value?
A. It increases
B. It decreases
C. It remains unchanged
D. It becomes negative automatically
Answer: B
Rationale: A higher discount rate applies greater discounting to future cash flows,
producing a lower present value.
7.
Which mathematical expression correctly represents the present value of a single
future cash flow?
A. PV = FV × (1 + r)^t
B. PV = FV ÷ (1 + r)^t
C. PV = FV + r + t
D. PV = FV × r × t
Answer: B
Rationale: Discounting divides the future value by the accumulation factor raised
to the number of periods.
QUESTIONS AND DETAILED SOLUTIONS LATEST
UPDATE THIS YEAR JUST RELEASED
1.
A manager can receive $10,000 today or $10,000 three years from now. Assuming
positive interest rates, why is receiving the money today generally more valuable?
A. Money received today can potentially earn returns during the three-year
period
B. Future money is always subject to taxation
C. Present money automatically has greater purchasing power
D. Future payments cannot be invested
Answer: A
Rationale: The time value of money recognizes that money available today can be
invested and potentially generate additional returns before the future payment is
received.
2.
Which fundamental financial concept explains why a dollar received today
generally has a different economic value than a dollar received several years in
the future?
,A. Accounting conservatism
B. Time value of money
C. Matching principle
D. Revenue recognition
Answer: B
Rationale: Time value of money reflects the opportunity to invest current funds
and earn returns, making timing important when comparing financial amounts.
3.
An investor deposits $5,000 into an account earning 6% annually. Which concept
determines the account's value at the end of one year?
A. Present value
B. Future value
C. Economic depreciation
D. Opportunity cost only
Answer: B
Rationale: Future value measures what an amount invested today will grow to
after earning interest over a specified period.
4.
,A company expects to receive $20,000 two years from now and uses an 8%
annual discount rate. What financial concept converts that future amount into
today's equivalent value?
A. Future value
B. Present value
C. Book value
D. Salvage value
Answer: B
Rationale: Present value discounts a future cash flow back to today using the
appropriate interest or discount rate.
5.
If the annual interest rate remains positive, what generally happens to the
present value of a fixed future cash flow when the waiting period becomes
longer?
A. Present value increases
B. Present value decreases
C. Present value remains unchanged
D. Present value becomes equal to future value
Answer: B
Rationale: A future cash flow received farther into the future is discounted for
more periods, reducing its equivalent value today.
, 6.
If the discount rate increases while the future cash flow and time period remain
unchanged, what happens to its present value?
A. It increases
B. It decreases
C. It remains unchanged
D. It becomes negative automatically
Answer: B
Rationale: A higher discount rate applies greater discounting to future cash flows,
producing a lower present value.
7.
Which mathematical expression correctly represents the present value of a single
future cash flow?
A. PV = FV × (1 + r)^t
B. PV = FV ÷ (1 + r)^t
C. PV = FV + r + t
D. PV = FV × r × t
Answer: B
Rationale: Discounting divides the future value by the accumulation factor raised
to the number of periods.
