Question 1

Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest rises to 16 percent?

Accepted Answer

The answer of Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows...

Question 2

Exhibit 13.1
 
-Refer to Exhibit 13.1,which shows the expected rate of return on investment undertaken by a firm.At an interest rate of 8 percent,investment will equal approximately _____

Accepted Answer

At an interest rate of 8 percent, the investment curve intersects at a point that represents an investment level of approximately $500,000. This is determined by finding the point on the graph where the interest rate of 8 percent meets the investment curve and then tracing down to the corresponding investment amount on the horizontal axis.

Question 3

Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest is 8 percent?

Accepted Answer

The firm will invest in projects where the expected rate of return is greater than or equal to the market rate of interest. If the market rate is 8%, the firm will invest in projects up to the point where the expected rate of return equals 8%. Assuming Exhibit 13.2 shows a declining rate of return with increasing investment, $15,000 is likely the investment level where the expected rate of return equals 8%.

Question 4

If a firm can borrow or lend at a 10 percent annual interest rate,it will _____.

Accepted Answer

If a firm can borrow or lend at a 10 percent annual interest rate, it should invest in all the units of capital with an expected rate of return above 10 percent. This is because the firm can borrow at 10 percent and earn a higher return on the investment, leading to a positive net return. Investing in units with a lower expected rate of return would lead to negative net return since the interest cost of borrowing would be higher than the return on investment.

Question 5

If the expected rate of return from a purchase of equipment is greater than the market interest rate,the firm should _____

Accepted Answer

If the expected rate of return from a purchase of equipment is greater than the market interest rate, it indicates that the equipment purchase will generate higher profits than alternative investments such as leaving the funds in a savings account or purchasing bonds. Therefore, the firm should purchase the equipment to take advantage of the higher expected return.

Question 6

Intellectual property is _____

Accepted Answer

Intellectual property, such as patents and trademarks, can be seen as a form of intangible capital.

Question 7

Interest is a payment for deferred _____

Accepted Answer

Interest is essentially a payment for the use of someone else's money for a period of time, often viewed as the cost of deferring consumption. When you borrow money to spend later rather than now, you typically pay interest.

Question 8

Which of the following would be true if the market interest rate increases?

Accepted Answer

The answer of Which of the following would be true...

Question 9

Exhibit 13.1
 
-Refer to Exhibit 13.1,which shows the expected rate of return on investment undertaken by a firm.If the interest rate is 5 percent,investment will equal approximately _____

Accepted Answer

The answer of Exhibit 13.1
 
-Refer to Exhibit 13.1,which shows...

Question 10

If the annual interest rate is 4 percent,a consumer who spends $100 today _____

Accepted Answer

The correct answer is E because if a consumer spends $100 today at an annual interest rate of 4 percent, they are foregoing the opportunity to spend $104 next year. This is because if they had saved or invested the $100, it would have grown to $104 in a year's time due to the interest earned.

Question 11

A firm's demand curve for investment is its _____

Accepted Answer

A firm's demand for investment is based on the expected rate of return on that investment. As the expected rate of return on investment varies, the firm's demand for investment changes. Therefore, the firm's demand curve for investment is its expected rate of return on investment curve.

Question 12

Which of the following is true of the market interest rate?

Accepted Answer

The market interest rate represents the opportunity cost of investing in capital. This is because investors must weigh the potential returns of investing their money against the opportunity cost of what they could have earned by putting their money into a risk-free investment, such as a government bond. The market interest rate is not guaranteed to increase or decrease from year to year and is affected by both the supply and demand for loanable funds, not just the demand for investment.

Question 13

Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.Given the market rate of interest shown,the firm should reject any investment with an expected rate of return that is _____

Accepted Answer

If the market rate of interest is the benchmark for investment decisions, the firm should reject investments yielding returns below this rate, as they would not compensate adequately for the cost of capital.

Question 14

The interest rate compensates _____

Accepted Answer

The interest rate is a compensation for savers for deferring consumption and investment in the current period. By saving their money in a bank or investing it, they are giving up the opportunity to spend that money on current consumption. The interest rate they earn is the compensation they receive for forgoing that current consumption.

Question 15

The Whitmans decided to offer their beach house in Miami for rent.If they expect a monthly rent of $5,000 and the cost of building the house is $1 million,their expected rate of return should be _____

Accepted Answer

The expected rate of return is calculated by dividing the annual income by the cost of the investment. Here, the annual income from rent is $5,000 * 12 = $60,000. The cost of the house is $1 million. Therefore, the expected rate of return is ($60,000 / $1,000,000) * 100 = 6 percent annually.

Question 16

If the interest rate increases from 6 percent to 10 percent per year,every $100 saved will earn _____

Accepted Answer

The increase in interest rate is 4% (from 6% to 10%). Therefore, for every $100 saved, the additional interest earned is 4% of $100, which is $4 more per year.

Question 17

Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest falls to 4 percent?

Accepted Answer

The answer of Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows...

Question 18

When the expected rate of return from a purchase of equipment is lower than the market interest rate,a firm should _____

Accepted Answer

If the expected rate of return from purchasing equipment is lower than the market interest rate, it means that the investment is not profitable enough to justify tying up the firm's funds. In such a case, the company should not purchase the equipment and should look for other investment opportunities that offer higher rates of return.

Question 19

If the annual interest rate is 5 percent,_____

Accepted Answer

The correct calculation for an annual interest rate of 5 percent would be:
$100 + ($100 x 0.05) = $105 after one year. 
Option A is the only choice that matches this calculation.

Question 20

A firm's expected rate of return on investment curve shows the amount _____

Accepted Answer

The expected rate of return on investment curve shows the amount invested by the firm at each interest rate. It represents the relationship between the expected rate of return on investment and the level of investment made by the firm. As the expected rate of return on investment increases, the firm is likely to increase its investment to take advantage of the higher return.

Quiz 13: Capital, interest, entrepreneurship, and Corporate Finance

Exhibit 13.2 -Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest rises to 16 percent?

Exhibit 13.1 -Refer to Exhibit 13.1,which shows the expected rate of return on investment undertaken by a firm.At an interest rate of 8 percent,investment will equal approximately _____

Exhibit 13.2 -Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest is 8 percent?