TEST BANK
Asifa Aamir
Contemporary Business Mathematics
with Canadian Applications
13th Edition
S. A. Hummelbrunner
Kelly Halliday
Ali R. Hassanlou
All Chapters Arranged Reverse: 16-1
This is The Original Test Bank for 13th Edition, All
other Files in The Market are Fake/Old/Wrong.
,Contemporary Business Mathematics, 13e (Hummelbrunner et al.)
Chapter 16 Investment Decision Applications
16.1 Discounted Cash Flow
16.1.1 Section Exercises
1) An obligation can be settled by making a payment of $7500.00 now and a final payment of $10 000.00 in
five years. Alternatively the obligation can be settled by payments of $750.00 at the end of every three
months for five years. If interest rate is 10% compounded quarterly, determine the preferred alternative.
Answer: PV of 10 000: n = 5(4) = 20; i = = 0.025; FV = 10 000; I/Y = 10;P/Y = C/Y = 4
PV = 10000(1.025)-20 = 6102.71
ALT. 1 = 7500 + 6102.71 = 13 602.71 = $13 603
Programmed solution:
For ALT. 2:
PMT = 750; n = 5(4) = 20; i = 0.025; I/Y = 10; P/Y = C/Y = 4
PV = 750 = 11 691.87 = $11 692
Programmed solution:
ALT. 2 is better (less to pay)
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
2) You win a lottery and have a choice of taking $200 000.00 immediately or taking payments of $7311.15
at the end of every three months for ten years. Which offer is preferable if interest is 8% compounded
quarterly?
Answer: PMT = 7311.15; n = 10(4) = 40; i = 0.02; I/Y = 8; P/Y = C/Y = 4
PV = 7311.15 = $200 000.01 = $200 000
Either option is preferable.
Diff: 1 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
1
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,basis of the discounted cash flow criterion.
3) An obligation can be settled by making a payment of $12 000 now and a final payment of $32 000 in 4
years. Alternatively, the obligation can be settled by payments of $2700 at the end of every three months
for five years. Interest is 10% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 = 12000.00 + 32000.00(1.025)-16
= 12000.00 + 32000.00(.6736249)
= 12000.00 + 21556.00 = $33 556
ALT. 2 = 2700.00 = 2700.00(15.5891623) = $42090.74 = $42 091
Since the present value of Alternative 1 is less than the present value of Alternative 2, Alternative 1 is
preferable.
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
4) An obligation can be settled by making a payment of $16 000 now and a final payment of $30 000 in 3
years. Alternatively, the obligation can be settled by payments of $2500 at the end of every three months
for four years. Interest is 12% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 = 16000.00 + 30000.00(1.03)-12
= 16000.00 + 30000.00(.701378802)
= 16000.00 + 21041.40 = $37041.40 = $37 041.
ALT. 2 = 2500.00 = 2500.00(12.56110203) = $31402.76 = $31 403
At 12% compounded quarterly Alternative 2 is preferable.
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
2
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, 5) An expenditure may be met by outlays of $1700 now and $2210 at the end of every six months for 6
years or by making monthly payments of $500 in advance for seven years. Interest is 11% compounded
annually.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 p = - 1 = .05356538
= 1700.00 + 2210.00
= 1700.00 + 2210.00(8.6876858) = 1700.00 + 19199.79 = $20899.79 = $20 900. BEST
ALT. 2 p = - 1 = .0087346
= 500.00 (1.0087346)
= 500.00(59.3435117)(1.0087346) = $29930.93 = $29 931
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
6) An expenditure may be met by outlays of $3000 now and $1000 at the end of every six months for 5
years or by making monthly payments of $250 in advance for three years. Interest is 12% compounded
annually.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 p = - 1 = .05833005
= 3000.00 + 1000.00
= 3000.00 + 1000.00(7.419712748) = 3000.00 + 7419.71 = $10419.71 = $10 420
ALT. 2 p = - 1 = .00948879
= 250.00 (1.00948879)
= 250.00(30.3747539)(1.009488793) = $7665.74 = $7666 BEST
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
3
Copyright © 2025 Pearson Canada Inc.
Asifa Aamir
Contemporary Business Mathematics
with Canadian Applications
13th Edition
S. A. Hummelbrunner
Kelly Halliday
Ali R. Hassanlou
All Chapters Arranged Reverse: 16-1
This is The Original Test Bank for 13th Edition, All
other Files in The Market are Fake/Old/Wrong.
,Contemporary Business Mathematics, 13e (Hummelbrunner et al.)
Chapter 16 Investment Decision Applications
16.1 Discounted Cash Flow
16.1.1 Section Exercises
1) An obligation can be settled by making a payment of $7500.00 now and a final payment of $10 000.00 in
five years. Alternatively the obligation can be settled by payments of $750.00 at the end of every three
months for five years. If interest rate is 10% compounded quarterly, determine the preferred alternative.
Answer: PV of 10 000: n = 5(4) = 20; i = = 0.025; FV = 10 000; I/Y = 10;P/Y = C/Y = 4
PV = 10000(1.025)-20 = 6102.71
ALT. 1 = 7500 + 6102.71 = 13 602.71 = $13 603
Programmed solution:
For ALT. 2:
PMT = 750; n = 5(4) = 20; i = 0.025; I/Y = 10; P/Y = C/Y = 4
PV = 750 = 11 691.87 = $11 692
Programmed solution:
ALT. 2 is better (less to pay)
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
2) You win a lottery and have a choice of taking $200 000.00 immediately or taking payments of $7311.15
at the end of every three months for ten years. Which offer is preferable if interest is 8% compounded
quarterly?
Answer: PMT = 7311.15; n = 10(4) = 40; i = 0.02; I/Y = 8; P/Y = C/Y = 4
PV = 7311.15 = $200 000.01 = $200 000
Either option is preferable.
Diff: 1 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
1
Copyright © 2025 Pearson Canada Inc.
,basis of the discounted cash flow criterion.
3) An obligation can be settled by making a payment of $12 000 now and a final payment of $32 000 in 4
years. Alternatively, the obligation can be settled by payments of $2700 at the end of every three months
for five years. Interest is 10% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 = 12000.00 + 32000.00(1.025)-16
= 12000.00 + 32000.00(.6736249)
= 12000.00 + 21556.00 = $33 556
ALT. 2 = 2700.00 = 2700.00(15.5891623) = $42090.74 = $42 091
Since the present value of Alternative 1 is less than the present value of Alternative 2, Alternative 1 is
preferable.
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
4) An obligation can be settled by making a payment of $16 000 now and a final payment of $30 000 in 3
years. Alternatively, the obligation can be settled by payments of $2500 at the end of every three months
for four years. Interest is 12% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 = 16000.00 + 30000.00(1.03)-12
= 16000.00 + 30000.00(.701378802)
= 16000.00 + 21041.40 = $37041.40 = $37 041.
ALT. 2 = 2500.00 = 2500.00(12.56110203) = $31402.76 = $31 403
At 12% compounded quarterly Alternative 2 is preferable.
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
2
Copyright © 2025 Pearson Canada Inc.
, 5) An expenditure may be met by outlays of $1700 now and $2210 at the end of every six months for 6
years or by making monthly payments of $500 in advance for seven years. Interest is 11% compounded
annually.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 p = - 1 = .05356538
= 1700.00 + 2210.00
= 1700.00 + 2210.00(8.6876858) = 1700.00 + 19199.79 = $20899.79 = $20 900. BEST
ALT. 2 p = - 1 = .0087346
= 500.00 (1.0087346)
= 500.00(59.3435117)(1.0087346) = $29930.93 = $29 931
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
6) An expenditure may be met by outlays of $3000 now and $1000 at the end of every six months for 5
years or by making monthly payments of $250 in advance for three years. Interest is 12% compounded
annually.
Compute the present value of each alternative and determine the preferred alternative according to the
discounted cash flow criterion.
Answer:
ALT. 1 p = - 1 = .05833005
= 3000.00 + 1000.00
= 3000.00 + 1000.00(7.419712748) = 3000.00 + 7419.71 = $10419.71 = $10 420
ALT. 2 p = - 1 = .00948879
= 250.00 (1.00948879)
= 250.00(30.3747539)(1.009488793) = $7665.74 = $7666 BEST
Diff: 2 Type: SA
Topic: 16.1 Discounted Cash Flow
Objective: 16-1: Determine the discounted value of cash flows and choose between alternative investments on the
basis of the discounted cash flow criterion.
3
Copyright © 2025 Pearson Canada Inc.
