NEW! What is the effect of using MACRS rather than strait line depreciatin ? Introducing Textbook Solutions. When the real rate of interest is less than the nominal rate of interest, then: A. When the real rate of interest is less than the nominal rate of interest then, 7 out of 7 people found this document helpful, When the real rate of interest is less than the nominal rate of interest, then: the rate of inflation must be, The likely effect of discounting nominal cash flows with real interest rates will be to make an, If a project permits a reduction in the level of working capital, this reduction is assumed to increase cash, The internal rate of return is most reliable when evaluating: a single project with only cash inflows. False a risky dollar is worth more than a safe one, Changes in net working capital can occur at: Any time during the life of a project. You should neither subtract the debt proceeds from the, project's required investment, nor would you recognize the interest and principal payments on the debt, A new inventory system will immediately reduce inventory levels by $100,000. Learn vocabulary, terms, and more with flashcards, games, and other study tools. investment, C) nominal cash flows should be discounted with real rates, D) the rate of inflation must be positive. B) investment returns cannot increase the purchasing power of an investment. Inflation must be added to the nominal rate B. Terms C) nominal cash flows should be discounted with real rates. Use of a profitability index to evaluate mutually exclusive projects in the absence of capital rationing: if two machines produce the same: lowest equivalent annual cost, The ratio of net present value to initial investment is known as the: profitability index, Which one of the following changes in working capital is least likely, given an increase in the overall level, of sales? 2) The nominal interest rate is A) the interest rate measured in terms of goods. & You would be most apt to select Project A if: Project A is twice the size of Project B, A project's payback period is determined to be 4 years. it increases the NPV, the modified internal rate of return can be used to correct for: multiple internale rates of return. When the real rate of interest is less than the nominal rate of interest, then: the rate of inflation must be positive The likely effect of discounting nominal cash flows with real interest rates will be to make an investment's NPV appear more attractive. Privacy | 16.48, Projects A and B are mutually exclusive lending projects. C) equal to the real interest rate minus the rate of inflation. The decision rule for net present value is to: accept all projects with positive net present values. Which one of the following changes will increase the NPV of a project? A decrease in the discount rate, The investment timing problem arises when. If it is later discovered that additional cash flows, will be generated in years 5 and 6, then the project's payback period will: be unchanged, Suppose you finance a project partly with debt. investment can occur now or at some future point. When the real rate of interest is less than the nominal rate of Learn vocabulary, terms, and more with flashcards, games, and other study tools. Course Hero is not sponsored or endorsed by any college or university. Course Hero, Inc. View desktop site. BUSI 530 Managerial Finance Chapter 9 Homework.docx, A project that will provide annual cash flows of $5,000 a year for f.docx, National Chengchi University • COLLEGE OF 261240, American Graduate University • FINANCE 661, Harrison FIN 4000 Bond and Stock Calculations.doc, Harrison FIN4000-Bond and Stock Calculations.doc, Harrison FIN4000- WACC Calculation Assignment.docx, Copyright © 2020. Investment returns do not increase C. Nominal flows should be discounted with real rates D. Inflation is purchasing power expected to occur Brealey - Chapter 09 #4 4 Difficulty: EasyLearning Objective: 9.1 Type: Multiple Choice 45.