BUSI 520 Chapter 6: Evaluating the Financial Impact of Loans and Investments

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(Annual Percentage Rate / Pmts per Year)

Rate for PMT?

(# of Years * Pmts per Year

Nper for PMT?

False

In order to calculate the Future Value of a stream of monthly cash flows which start immediately, and also include an additional lump sum at the beginning of the transaction, the value in the PMT argument should equal the Lump Sum amount plus the monthly Payment amount.

True

The "values" argument in the formula =IRR(values,guess) is a list of positive and negative cash flows.

True

In financial functions, if the Type argument is left blank, the f unctionwill assume that payments will start at end of the first payment period.

annual percentage yield (APY)

The equivalent yearly simple interest rate that takes into account compounding is the _____.

True

Changing the value in the Nper argument in financial functions will also affect the interest compoundng frequency.

True

When making loan payments, a proportion of each payment goes to pay off the interest accrued each period, and a proportion of each payment goes to reduce the principal (amount owed on the loan).

True

Setting up a loan amortization table is a standard method of detailing the transactions of a loan.

Positive

Cash received is considered a _____ cash flow.

$800

A deposit of $10,000 in a certificate of deposit that pays simple interest of 2% per year for a period of 4 years would be owed _____ interest at the end of the 4 years.

payback period

The _____ is the time it will take to earn sufficient profits so that the loan can be repaid.

interest

When calculating taxes in the United States, a company can expense or subtract from income only the _____ portion of a loan payment.

False

When making loan payments, as the princip allowed on the loan is slowly lowered,a larger proportion of the payment amount goes to reducing the prinicipal owed.

When making loan payments, as the principal owed on the loan is slowly lowered, the proportion of the payment amount applied to interest increases.

negative

Cash paid out in a transaction is considered a _____ cash flow.

Depreciation

_____ is the process by which a company spreads the expense of an asset over its useful life.

True

Beginning lump sums (or balances) do indeed go in the PV argument box...whenever there is a PV argument (like when using the FV and PMT functions).&nbsp; When using the PV function to calculate the Present Value, there is no PV argument...therefore in that case (and that case only), since there is no PV argument, the PV gets added to the end.&nbsp; </p> <p>The Present Value of a beginning lump sum is just that amount...no interest calculations need to be made with this value, therefore it can just be added to the result of the PV calculation being used to calculate Present Value.

When calculating a future value, enter beginning lump sum amounts and beginning balances in the PV argument box.

balloon payment

A _____ is additional money required from the borrower at the end of a loan.

True

If there is not a FV argument box (such as when you're calculating Future Value), add the Ending Lump Sum to the end of the formula (added outside of the FV function).

False

The lower the net present value (NPV), the more profitable the project.

1

Payments made at the beginning of each period are indicated by a Payment_type of _____.

True

The payment Type does not affect lump sum amounts...it only applies to periodic payments (located in the PMT box).

compound

Adding interest earned each period to the principal and then computing interest for the next period is _____ interest.

True

You can define a range name for a value not listed in any worksheet.

FV

The _____ argument of the PMT function refers to the value at the end of the transaction.

0

In financial functions, an argument Type of _____ indicates payments are made at the end of each period.

Nper

When using the PMT function, the argument which represents to total number of payment is _____.

PV

The _____ argument of the PMT function refers to the original principal value at the beginning of the transaction.

Return on investment (ROI)

_____ is the sum of the cash flows, excluding the initial investment, divided by the investment value

False

"Compound interest" is when you add interest earned each period to the principal and then use that value to compute interest for the next period.

"Simple interest" is when you add interest earned each period to the principal and then use that value to compute interest for the next period.

principal

Simple interest is equal to _____ multiplied by the interest rate per time period multiplied by the number of time periods.

False

In the Unites States, a company can deduct only the amount paid towards interest as an expense (which effectively reduces the amount of income taxed).

In the Unites States, a company can deduct amounts paid towards both the interest and the principal as expenses (which effectively reduces the amount of income taxed).

PV

When calculating loan payments, to show a down payment toward the purchase of an asset, you must adjust the _____ argument of the financial function..

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