Principles of Managerial Finance Brief 7th Edition By Gitman – Test Bank

Principles of Managerial Finance Brief 7th Edition By Gitman – Test Bank

Principles of Managerial Finance, Brief, 7e (Gitman)

Chapter 5   Time Value of Money

5.1   Discuss the role of time value in finance, the use of computational tools, and the basic patterns of cash flow.

1) Since individuals are always confronted with opportunities to earn positive rates of return on their funds, the timing of cash flows does not have any significant economic consequences.

Answer:  FALSE

Diff: 1

Topic:  Role of Time Value in Finance

Learning Obj.:  LG 1

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

2) Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Answer:  FALSE

Diff: 1

Topic:  Role of Time Value in Finance

Learning Obj.:  LG 1

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

5.2   Understand the concepts of future value and present value, their calculation for single amounts, and the relationship between them.

1) For a given positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Answer:  TRUE

Diff: 1

Topic:  Future Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

2) Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.

Answer:  FALSE

Diff: 1

Topic:  Future Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

3) The greater the interest rate and the longer the period of time, the higher the present value.

Answer:  FALSE

Diff: 1

Topic:  Present Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

4) Everything else being equal, the higher the interest rate, the higher the future value.

Answer:  TRUE

Diff: 1

Topic:  Future Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

5) Future value increases with increases in the interest rate or the period of time funds are left on deposit.

Answer:  TRUE

Diff: 1

Topic:  Future Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

6) Everything else being equal, the higher the discount rate, the higher the present value.

Answer:  FALSE

Diff: 1

Topic:  Present Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills

7) Everything else being equal, the longer the period of time, the lower the present value.

Answer:  TRUE

Diff: 1

Topic:  Present Value

Learning Obj.:  LG 2

Learning Outcome:  F-03

Question Status:  Previous Edition

AACSB Tag:  Analytic Skills