This is The Original Test Bank for 13th Edition, All

TEST BANK

Asifa Aamir Contemporary Business Mathematics with Canadian Applications 13 th Edition

• 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. 1 / 4

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. 2 / 4

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. 3 / 4

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.

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