Test bank for succeeding in business with microsoft excel 2013 a problem solving approach 1st editio

Test Bank for Succeeding in Business with Microsoft Excel 2013 A Problem-Solving Approach, 1

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Chapter 6: Evaluating the Financial Impact of Loans and Investments TRUE/FALSE 1. Money is usually not the only component in a business decision.

ANS: T

PTS: 1

REF: 359

2. When you borrow money from a bank to make a purchase, you must pay back the amount borrowed plus an additional amount known as principal.

ANS: F

PTS: 1

REF: 360

3. Most financial instruments, such as loans and CDs, use compound interest.

ANS: T

PTS: 1

REF: 361

4. Financial institutions advertise their loan interest rates in what is referred to as an annual loan plan, or ALP. ANS: F

PTS: 1

REF: 362

5. The PMT function finds the value of the payment per period, assuming that there are constant payments and a constant interest rate for the duration of the loan.

ANS: T

PTS: 1

REF: 364

6. When cash is received, it is considered negative cash flow.

ANS: F

PTS: 1

REF: 365

7. $10,000 compounded 1 time at 4% per period is different from $10,000 compounded 4 times at 1% per period; the latter results in a higher value.

ANS: T

PTS: 1

REF: 361

8. =NPER(rate,pmt,pv,fv,type) solves for the interest rate per period.

ANS: F

PTS: 1

REF: 368

9. The syntax of the FV function is =FV(rate,nper,pmt,[pv],[type]).

ANS: T

PTS: 1

REF: 368

10. The present value is the amount, or initial outlay, at the beginning of the transaction.

ANS: T

PTS: 1

REF: 371

11. A down payment is money required from the lender toward the purchase of an asset.

ANS: F

PTS: 1

REF: 375

12. Corporate taxes allow companies to allocate portions of the capital investment as an expense, thereby reducing the amount of taxes owed.

ANS: T

PTS: 1

REF: 379

13. Depreciation must be added to the cash flow in each year to calculate taxes for that year, but then must be subtracted because it is not actually a cash flow in that year.

ANS: F

PTS: 1

REF: 381

14. The fv argument is the value at the end of the financial transaction.

ANS: T

PTS: 1

REF: 385

15. Principal payments represent negative cash flows.

ANS: T

PTS: 1

REF: 389

16. In Excel 2013, using the Define Name button and then typing a name in the Name field allows the user to specify a named range scope.

ANS: T

PTS: 1

REF: 393

17. The net present value is an interest rate chosen to reflect not only the time value of money, but the desired returns the company expects for the level of risk being taken.

ANS: F

PTS: 1

REF: 403

18. The IRR method calculates the rate at which discounted cash flows in and out are equal, essentially where the NPV is $0.

ANS: T

PTS: 1

REF: 407

19. ROI is the sum of the cash flows, including the initial investment, divided by the investment value.

ANS: F

PTS: 1

REF: 410

20. Chart data series ranges include both sheet names and absolute cell references.

ANS: T

PTS: 1

REF: 414

MODIFIED TRUE/FALSE 1. The payback period is the value of the loan or investment. _________________________ ANS: F, principal PTS: 1

REF: 360

2. The rate per period is the monthly rate divided by the number of periods per year. _________________________ ANS: F

annual yearly PTS: 1

REF: 363

3. PV solves for the final value, which is the amount in or out at the end of the financial transaction. _________________________ ANS: F FV fv PTS: 1

REF: 368

4. The syntax of the FV function is =FV(rate,nper,pmt,[fv],[type]). _________________________ ANS: F pv [pv] PTS: 1

REF: 368

5. To calculate an interest rate, you can use the INTEREST function. _________________________ ANS: F RATE rate PTS: 1

REF: 368

6. A(n) balloon payment is additional money owed at the end of a loan. _________________________ ANS: T

PTS: 1

REF: 375

7. When calculating taxes in the United States, a company can subtract from income only the principal portion of a loan payment. _________________________ ANS: F, interest PTS: 1

REF: 379

8. The IPMT function calculates the value of the interest payment for a specified period. _________________________ ANS: T

PTS: 1

REF: 385

9. =CIPMT(rate,nper,pv,start_period,end_period,type) returns the cumulative interest paid on a loan between start_period and end_period. _________________________ ANS: F CUMIPMT cumipmt

PTS: 1

REF: 387

10. Bottom line depreciation basically allocates the value of an asset evenly throughout the life of the asset. _________________________ ANS: F Straight line Straight-line PTS: 1

REF: 390

11. Range names must start with a letter, an underscore, or a(n) backslash. _________________________ ANS: T

PTS: 1

REF: 394

12. The variable-declining balance method returns the depreciation of an asset for a specified period. _________________________ ANS: F, fixed PTS: 1

REF: 395

13. NPV enables you to see the current worth of the projected cash flows, which helps you to determine the profitability of the venture. _________________________ ANS: T

PTS: 1

REF: 403

14. The NPV function in Excel takes the cash flow from year 0, which is referred to as value0, and discounts the value by one year. _________________________ ANS: F 1 one PTS: 1

REF: 405

15. The values argument in the IRR function is a list of positive and negative cash flows. _________________________ ANS: T

PTS: 1

REF: 408

MULTIPLE CHOICE 1. ____ is like a user fee because you are paying to “use” the bank’s money. a. Interest c. Cash flow b. Principal d. Depreciation ANS: A

PTS: 1

REF: 360

2. The ____ is the value of the loan or investment. a. principal c. cash flow b. interest d. depreciation ANS: A

PTS: 1

REF: 360

3. Interest that is paid solely on the amount of the original principal value is called ____ interest. a. simple c. compound b. complex d. principal ANS: A

PTS: 1

REF: 360

4. Adding interest earned each period to the principal for purposes of computing interest for the next period is known as ____ interest. a. compound c. complex b. simple d. principal ANS: A

PTS: 1

REF: 361

5. ____ is the equivalent of a yearly simple interest rate, taking into account compounding. a. Annual percentage yield c. Annual compound interest b. Annual cash flow d. Annual simple interest ANS: A

PTS: 1

REF: 362

6. The APR reflects the ____ being paid on the actual amount borrowed. a. principal c. cash flow b. interest d. depreciation ANS: B

PTS: 1

REF: 362

7. The ____ function finds the value of the payment per period, assuming that there are constant payments and a constant interest rate for the duration of the loan. a. PAY c. PAYMENT b. CASH d. PMT ANS: D

PTS: 1

REF: 368

8. In a PMT function, the ____ argument is the interest rate per compounding period. a. rate c. pv b. nper d. type ANS: A

PTS: 1

REF: 364

9. In a PMT function, the ____ argument is the number of compounding periods. a. rate c. pv b. nper d. type ANS: B

PTS: 1

REF: 364

10. In a PMT function, the ____ argument is the original principal value at the beginning of the financial transaction. a. rate c. pv b. nper d. type ANS: C

PTS: 1

REF: 364

11. In a PMT function, the ____ argument designates when payments are made. a. rate c. fv b. nper d. type ANS: D

PTS: 1

REF: 364

12. In a PMT function, the ____ argument is the value at the end of the financial transaction. a. rate c. fv b. nper d. type ANS: C

PTS: 1

REF: 364

13. Cash amounts that are either received or paid out during the course of the financial transaction are often referred to as ____. a. cash flow c. in and out money b. cash movement d. business money ANS: A

PTS: 1

REF: 365

14. When cash is received, it is considered to be ____. a. positive cash flow c. in money b. negative cash flow d. positive cash source ANS: A

PTS: 1

REF: 365

15. When cash is paid out, it is considered to be ____. a. positive cash flow c. out money b. negative cash flow d. bad cash ANS: B

PTS: 1

REF: 365

16. When used in the PMT function, the comma in 1,000 is interpreted as ____. a. the beginning of a new argument c. part of the number b. the end of a new argument d. none of the above ANS: A

PTS: 1

REF: 367

17. In financial functions, the default transaction (type ____) indicates payments are made at the end of each period. a. 0 c. 1 b. d. end ANS: A

PTS: 1

REF: 368

18. In financial functions, type ____ indicates payments are made at the beginning of each period. a. 0 c. 1 b. d. start ANS: C

PTS: 1

REF: 369

19. A loan that is completely paid off would have an fv of ____. a. 0 c. the monthly payment b. the original amount of the loan d. none of the above ANS: A

PTS: 1

REF: 369

20. A bank account would have an fv equal to the ____ plus any accrued interest, plus or minus any payments into or out of the account. a. pv c. pmt b. rate d. fv ANS: A

PTS: 1

REF: 369

21. If you are calculating payments to a bank (a negative cash flow), your formula requires a positive ____. a. present value (pv) c. present value (pv) and future value (fv) b. future value (fv) d. any of the above ANS: D

PTS: 1

REF: 370

22. If you are calculating a positive future value (money being withdrawn from a bank, which is a positive cash flow), your formula requires a negative ____. a. present value (pv) c. present value (pv) and payment (pmt) b. payment (pmt) d. any of the above ANS: D

PTS: 1

REF: 370

23. A house that costs $200,000 and requires a 10% down payment would have an original loan value (pv) of ____. a. $180,000 c. $210,000 b. $190,000 d. $220,000 ANS: A

PTS: 1

REF: 375

24. The formula =PMT(0.03/12,12*3,15000,–2000) includes a ____. a. balloon payment c. down payment b. depreciation factor d. none of the above ANS: A

PTS: 1

REF: 375

25. ____ include(s) points, loan application fees, or any other fee that the borrower must pay up front. a. Mortgage loans c. Upfront interest b. Mortgage interest d. none of the above ANS: D

PTS: 1

REF: 375

26. To account for a down payment, adjust the ____ of the loan by subtracting it from the loan amount. a. present value (pv) c. rate b. future value (fv) d. type ANS: A

PTS: 1

REF: 375

27. Taxes are calculated based on _____ income, which excludes certain elements that are cash flows and includes other non-cash flow items. a. regular c. standard b. taxable d. itemized ANS: B

PTS: 1

REF: 380

28. The ____ of a loan is NOT directly tax deductible. a. principal payment c. both a and b b. interest d. neither a nor b ANS: A

PTS: 1

REF: 381

29. Depreciation is the process by which a company spreads the ____ of an asset over its useful life. a. value c. both a and b b. expense d. neither a nor b

ANS: B

PTS: 1

REF: 381

30. Depreciation needs to be _____ the cash flow in each year to calculate taxes for that year. a. added to c. either a or b b. subtracted from d. neither a nor b ANS: B

PTS: 1

REF: 381

31. After the ____ and depreciation have been deducted, taxes can be calculated. a. interest expense c. liabilities b. assets d. all of the above ANS: A

PTS: 1

REF: 381

32. A standard method of detailing a loan transaction is to set up what is known as a(n) ____. a. amortization table c. depreciation table b. mortgage table d. cash flow table ANS: A

PTS: 1

REF: 383

33. The PPMT function calculates the value of the ____ for a specified period. a. principal payment c. either a or b b. interest payment d. neither a nor b ANS: A

PTS: 1

REF: 385

34. The ____ function calculates the value of the interest payment for a specified period. a. PPMT c. INMT b. IPMT d. RATE ANS: B

PTS: 1

REF: 385

35. In the PPMT function, the per-argument periods begin at 1 and end at the last payment period, which equals ____. a. nper c. pv b. fv d. rate ANS: A

PTS: 1

REF: 385

36. In the function =IPMT(B$3/B$5,A11,B$4*B$5,B$2,B$6,0), the entry “B$6” represents the ____. a. rate c. pv b. per d. fv ANS: D

PTS: 1

REF: 385

37. In the function =IPMT(B$3/B$5,A11,B$4*B$5,B$2,B$6,0), the only argument that will vary when copied down a column will be the ____. a. nper c. pv b. per d. fv ANS: B

PTS: 1

REF: 385

38. ____ returns the cumulative interest paid on a loan between start_period and end_period. a. CUMIPMT c. IPMTCUM b. CUMPMT d. CUMINT ANS: A

PTS: 1

REF: 387

39. ____ returns the cumulative principal paid on a loan between start_period and end_period. a. CUMPRINC c. PRINCUM b. ICUMPR d. CUMPRI ANS: A

PTS: 1

REF: 387

40. ____ depreciation basically allocates the value of an asset evenly throughout the life of the asset. a. Complex c. Straight line b. Compound d. Even ANS: C

PTS: 1

REF: 390

41. In the SLN function, the _____ argument is the initial cost of the asset. a. cost c. value b. price d. pv ANS: A

PTS: 1

REF: 391

42. In the SLN function, the _____ argument is the value at the end of depreciation. a. end c. salvage b. life d. sell ANS: C

PTS: 1

REF: 391

43. In the SLN function, the _____ argument is the number of periods over which the asset is depreciated. a. periods c. number b. life d. sell ANS: B

PTS: 1

REF: 391

44. Named ranges can be named and then specified as either a workbook scope or to a specific ____. a. worksheet c. chart b. table d. file ANS: A

PTS: 1

REF: 393

45. The depreciation method that computes depreciation at an accelerated rate with depreciation being highest in the first period and decreasing in successive periods is ____. a. variable-declining balance c. sum of the years digits b. fixed-declining balance d. double-declining balance ANS: D

PTS: 1

REF: 394

46. Which of the following is true of range names? a. Range names are case sensitive. c. Range names can contain blank spaces. b. Range names can exceed 255 characters. d. none of the above ANS: D

PTS: 1

REF: 394

47. The depreciation method where depreciation is apportioned based on a declining fractional amount of the asset’s life is the ____ method. a. variable-declining balance c. sum of the years digits b. fixed-declining balance d. double-declining balance ANS: C

PTS: 1

REF: 395

48. The depreciation method with the formula =DB(cost,salvage,life,period,[month]) is the ____ method. a. variable-declining balance c. sum of the years digits b. fixed-declining balance d. double-declining balance ANS: B

PTS: 1

REF: 395

49. The ____ depreciation method calculates interest as highest in the first period and decreases in amount each period thereafter. a. double-declining balance c. sum of the years digits b. fixed-declining balance d. variable-declining balance ANS: A

PTS: 1

REF: 394

50. To apply a range name globally, make sure that Workbook is selected as the ____ box. a. Name c. Range b. Breadth d. Scope ANS: D

PTS: 1

REF: 396

51. The function =-ROUND(Taxrate*C16,0) will round taxes to the nearest ____. a. dollar c. penny b. dime d. none of the above ANS: A

PTS: 1

REF: 396

52. ____ is preferred by most financial theorists because it uses the expected cash flows and applies a minimum rate of return to discount these cash flows into current (present) value dollars. a. NPV c. EPP b. EPS d. IRR ANS: A

PTS: 1

REF: 404

53. The rate of return is often referred to as the ____. a. hurdle rate c. both a and b b. discount rate d. neither a nor b ANS: C

PTS: 1

54. When using NPV, ____ are ignored. a. text values b. error messages ANS: C

PTS: 1

REF: 404

c. both a and b d. neither a nor b REF: 404

55. NPV requires that value1, value2, value3, and so on must be equally spaced in time and occur at ____. a. the end of each period c. the beginning of each period b. the end of the year d. the beginning of the year ANS: A

PTS: 1

REF: 404

56. When using the NPV function in Excel, the first cash flow into or out of the financial transaction is assumed to be ____. a. one year from now c. today b. one month from now d. tomorrow ANS: A

PTS: 1

REF: 405

57. Using the NPV function, you can write a formula to determine the net present value of the income flows for a project, including the initial investment, as follows: ____. a. –Initial Investment+NPV c. NPV+Initial investment b. –NPV+Initial investment d. none of the above ANS: A

PTS: 1

REF: 405

58. In projects where cash flows are negative at both the beginning and the end of the project life, the results of the NPV and IRR are often ____. a. similar c. error-generating b. contradictory d. none of the above ANS: B

PTS: 1

59. IRR stands for the ____. a. internal rate of return b. initial rate of return ANS: A

PTS: 1

REF: 407

c. interest rate of return d. none of the above REF: 407

60. The ____ method calculates the rate at which discounted cash flows in and out are equal. a. IRR c. both a and b b. NPV d. neither a nor b ANS: A

PTS: 1

REF: 407

61. The syntax of the IRR function is as follows: ____. a. =IRR(values,[guess]) c. =IRR(fv,pv,[values]) b. =IRR(rate,[guess]) d. =IRR(per,[guess]) ANS: A

PTS: 1

REF: 407

62. In the IRR function, the guess argument is optional and should not be needed, but can be used if the ____ iterations that are automatically performed by Excel do not result in an accurate value. a. 10 c. 20 b. 15 d. 25 ANS: C

PTS: 1

REF: 408

63. In the IRR function, the values argument is a list of ____. a. negative cash flows c. both a and b b. positive cash flows d. neither a nor b ANS: C

PTS: 1

REF: 408

64. The best chart to show a functional relationship, such as hurdle rate versus NPV, is ____. a. an X plot c. a Y plot b. an XY Scatter d. a pie chart ANS: B

PTS: 1

REF: 409

65. Stockholders often look at the ____ as a quick measure of how attractive a company’s stock is versus other stocks within the industry. a. ROI c. FV b. NPV d. ROR ANS: A

PTS: 1

REF: 410

66. ROI is the ____, excluding the initial investment, divided by the investment value. a. sum of cash flows c. sum of principal payments b. market value d. asset value minus depreciation ANS: A

PTS: 1

REF: 410

67. The payback year is the year in which the cumulative total cash flow is greater than or equal to ____. a. $0 c. the amount of the last payment b. the value of the business d. the original loan amount ANS: A

PTS: 1

REF: 411

68. The payback period is the time it will take to ____. a. pay the loan back b. earn sufficient profits so that the loan can be paid back c. depreciate an item d. none of the above ANS: B

PTS: 1

REF: 411

69. Excel provides a method to automatically calculate the payback period, but it is a somewhat complex process that involves using the ____ reference function and calculating a cumulative total. a. MATCH c. CALCULATE b. LINK d. ISNUMBER ANS: A

PTS: 1

REF: 412

70. Which formula from the list below can be copied across a row to create a row of cumulative totals? a. =SUM($C24:C24)>0 c. MATCH($C24:C24)>0) b. IF($C24:C24)>0 d. =SUM($C$24:$C$24)>0 ANS: A

PTS: 1

Case-Based Critical Thinking Questions Case 6-1

REF: 412

Phil has put together the worksheet above with a 5-year cash flow estimate for his shoe company. He needs to explain the chart to his investors. Please answer the questions below using this figure as a reference.

71. Phil enters the tax rate of 35% in the workbook as a range named Taxrate without first entering the value itself in the workbook. In Excel, you can give a value a range name without actually entering the value in a specific cell. To do so, you use the ____ dialog box. a. New Name c. Data Name b. Range Name d. Cell Name ANS: A

PTS: 1

REF: 393

TOP: Critical Thinking

72. Phil also assumes that the actual taxes owed will be rounded to the nearest dollar. Using this information, he enters the formula ____ in cell C18 to calculate the taxes. This is the area indicated by #1 in the figure above. a. =ROUND(Taxrate*C16,0) c. =-ROUND(Taxrate*C16,1) b. =-ROUND(Taxrate*C16,0) d. =-ROUND(Taxrate*C16,2) ANS: B

PTS: 1

REF: 396

TOP: Critical Thinking

73. Phil also calculates the projected income after taxes in cell C19 using the formula ____. a. =C18+C19 c. =C18+C16 b. =C18-C12 d. =C18-C16 ANS: C

PTS: 1

REF: 396

TOP: Critical Thinking

74. Phil now must add back the depreciation because this is not actually a cash flow. Cell C15 contains the depreciable amount represented as a negative value. In this case, Phil enters the formula ____ in cell C21 and copies it across the row. a. =-C15 c. =C15-C16 b. =C15 d. =C15+C16 ANS: A

PTS: 1

REF: 397

TOP: Critical Thinking

75. To determine the projected cash flow, Phil must now total the following: taxable income, depreciation added back to the cash flow, and principal payments deducted from the cash flow (already a negative value). Phil enters the following formula in cell C24 and copies it across the row: ____. a. =SUM(C19,C21,C22) c. =C19+C21-C22 b. =C19-C21+C22 d. =C19-C21-C22 ANS: A

PTS: 1

REF: 397

TOP: Critical Thinking

Case-Based Critical Thinking Questions Case 6-2

Natalie is working on calculating the IRR of a project. Please refer to the figure above as you answer the questions below.

76. In college, Natalie had to calculate IRR manually so that she would have a good understanding of the way it worked. To do that, she needed to guess an IRR value and substitute it as the ____ in the NPV formula. a. discount rate c. time period b. amount borrowed d. none of the above ANS: A

PTS: 1

REF: 407

TOP: Critical Thinking

77. Natalie knows the syntax of the IRR function is as follows: IRR(values,[guess]). The values argument is a list of positive and negative cash flows. For this function to work, ____. a. all cash flows must be positive b. all cash flows must be negative c. there must be at least one positive and one negative cash flow d. it doesn’t matter at all ANS: C

PTS: 1

REF: 370

TOP: Critical Thinking

78. Natalie’s company has been going through a rocky time. Her boss asks her what would be an acceptable cash flow interval for calculating IRR. What should be her answer? a. every month c. every time a bill is paid b. every time a payment is received d. all of the above ANS: A

PTS: 1

REF: 407 | 408

TOP: Critical Thinking

79. Natalie has used the IRR function in the past and received a #NUM error. What does this error mean? a. 20 iterations did not result in an accurate value. b. 10 iterations did not result in an accurate value. c. There is an error in Natalie’s data. d. There is an error in Natalie’s formulas.

ANS: A

PTS: 1

REF: 408

TOP: Critical Thinking

80. Applying the IRR function to the worksheet in cell B39, Natalie writes the formula ____. a. =IRR(B24:G24) c. =IRR(C30:C38) b. =IRR(B27:G27) d. =IRR(C39) ANS: B

PTS: 1

REF: 408

TOP: Critical Thinking

COMPLETION 1. Interest that is paid solely on the amount of the original principal value is called ____________________ interest.

ANS: simple PTS: 1

REF: 360

2. The PMT function finds the value of the payment per period, assuming that there are constant payments and a constant ____________________ for the duration of the loan.

ANS: interest rate PTS: 1

REF: 364

3. When cash is paid out, it is considered ____________________ cash flow.

ANS: negative PTS: 1

REF: 365

4. Payments that are inflows should be ____________________, and payments that are outflows should be negative.

ANS: positive PTS: 1

REF: 368

5. Before constructing a formula with a financial function, it is a good idea to determine the timeline of the financial ____________________.

ANS: transaction

PTS: 1

REF: 371

6. The RATE function syntax is as follows: =RATE(nper,pmt,pv,fv,____________________,[guess]).

ANS: type PTS: 1

REF: 372

7. A(n) ____________________ payment is money required from the borrower toward the purchase of an asset.

ANS: down PTS: 1

REF: 375

8. In the SLN function, the ____________________ argument is the value at the end of the depreciation, sometimes referred to as the salvage value.

ANS: salvage PTS: 1

REF: 391

9. Sometimes a value is needed in multiple worksheets within a workbook. In this case, a(n) ____________________ range name is best.

ANS: global PTS: 1

REF: 394

10. Range ____________________ must start with a letter, an underscore, or a backslash.

ANS: names PTS: 1

REF: 394

11. The correct function for the fixed-declining balance method is =DB(cost,salvage,life,period,____________________).

ANS: month [month] PTS: 1

REF: 395

12. This function rounds the taxes owed: =-____________________(Taxrate*C16,0).

ANS: ROUND PTS: 1

REF: 396

13. When using the NPV function, the hurdle rate must match the ____________________ duration, so that a yearly cash flow would apply to a yearly discount rate, for example.

ANS: period time period PTS: 1

REF: 404

14. The NPV function in Excel takes the cash flow from year 0, which is referred to as value 1, and discounts the value by ____________________.

ANS: one year 1 year 12 months PTS: 1

REF: 405

15. The ____________________ method calculates the rate at which discounted cash flows in and out are equal, essentially where the NPV is $0.

ANS: IRR irr Internal Rate of Return internal rate of return PTS: 1

REF: 407

16. The syntax of the IRR function is as follows: =IRR(values,____________________).

ANS: guess [guess] PTS: 1

REF: 407

17. The ____________________ argument is a list of positive and negative cash flows.

ANS: values PTS: 1

REF: 408

18. The ____________________ is the sum of the cash flows, excluding the initial investment, divided by the investment value.

ANS: ROI roi return on investment ROI (return on investment) return on investment (ROI) PTS: 1

REF: 410

19. Business analysts must be aware that the ROI does not take into account the time value of ____________________.

ANS: money PTS: 1

REF: 410

20. Excel provides a method to automatically calculate the payback period, but it is a somewhat complex process that involves using the ____________________ reference function and calculating a cumulative total.

ANS: MATCH PTS: 1

REF: 412

MATCHING Identify the letter of the choice that best matches the word or phrase. a. simple interest d. compound interest b. principal e. balloon payment c. interest f. cash flow 1.

2.

3.

4.

The value of the loan or investment Interest that is paid solely on the amount of the original principal value A user fee you are paying to “use” the bank’s money Adding interest earned each period to the principal for purposes of computing interest for the next period 5. Additional money owed at the end of a loan 6. Cash amounts paid or received 1.

2.

3.

4.

5.

6.

ANS: B ANS: A ANS: C ANS: D ANS: E ANS: F

PTS: PTS: PTS: PTS: PTS: PTS:

1 1 1 1 1 1

REF: REF: REF: REF: REF: REF:

360 360 360 361 375 365

Identify the letter of the choice that best matches the arguments in the CUMIPMT function. a. #1 d. #4 b. #2 e. #5 c. #3 f. #6 7. Type 8. Rate per period

9.

10.

11.

12.

Initial loan amount (pv) Number of periods (nper) Starting period Ending period

7.

8.

9.

10.

11.

12.

ANS: F ANS: A ANS: C ANS: B ANS: D ANS: E

PTS: PTS: PTS: PTS: PTS: PTS:

1 1 1 1 1 1

REF: REF: REF: REF: REF: REF:

389 389 389 389 389 389

ESSAY 1. What is the correct syntax of the PMT function? Briefly describe each of the arguments associated with this function.

ANS: Correct syntax: =PMT(rate,nper,pv,[fv],[type]) • The rate argument is the interest rate per compounding period.

• The nper argument is the number of compounding periods.

• The pv argument is the present value, also referred to as the original principal value at the beginning of the financial transaction.

• The fv argument is the future value (compounded amount), also referred to as the value at the end of the financial transaction.

• The type argument designates when payments are made. Type 0, the default type, indicates that payments are made at the end of the period. Type 1 indicates that payments are made at the beginning of the period.

PTS: 1

REF: 364

TOP: Critical Thinking

2. Correctly set up an NPER function, assuming you are solving for how many years it will take to pay off a loan. You do not have to do the calculations—just set up the formula based on the facts below: • NPER(rate,pmt,pv,fv,type) • The rate per year is 3.5% compounded quarterly.

• The payment (pmt) is –$25,000 per quarter.

• The present value (pv) is $400,000 because the bank has offered to fund all of the capital required for the project.

• The future value (fv) is assumed to be $0 because no mention is made of any residual amounts owed at the end of the loan.

• The type argument is assumed to be the default 0.

ANS: =NPER(3.5%/4,-25000,400000)/4 NPER function result: 4.328051 (years) Notes: Since the payments are quarterly, the interest rate is divided by 4.

Since the type argument is 0, it can be omitted.

Remember to calculate NPER in terms of the number of compounding periods; in this case, the number of quarters. To calculate the loan duration in years, divide the number of periods (NPER) by the number of quarters per year.

Test Bank for Succeeding in Business with Microsoft Excel 2013 A Problem-Solving Approach, 1

PTS: 1

REF: 374

TOP: Critical Thinking

3. Briefly describe each of the following depreciation methods: straight line depreciation, double-declining balance, sum of the years digits, and fixed-declining balance.

ANS: • Straight line depreciation basically allocates the value of an asset evenly throughout the life of the asset.

• Double-declining balance computes depreciation at an accelerated rate. Depreciation is highest in the first period and decreases in successive periods.

• In sum of the years digits, depreciation is apportioned based on a declining fractional amount of the asset’s life.

• Fixed-declining balance returns the depreciation of an asset for a specified period.

PTS: 1

REF: 390 | 394 | 395

TOP: Critical Thinking

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