Question

1.It is the responsibility of managers to plan significant outlays for projects that are of the long term nature. T F

2.Discounted cash flow calculations assume that the net cash inflow related to a given period occur at the end of a period.T F

3.In terms of discounted cash flow calculations, the annuity present value table can only be used if the net cash inflow for each period is the same. T F

4.In terms of discounted cash flows a perpetuity is a stream of cash which runs forever. T F

5.We can calculate the present value of perpetuity by dividing the annual cash inflow by the required interest rate. T F

Answer 1

1. True. One of the major decisions a manager has to take is the Financing Decision which entails the responsibility to plan for future outlays.

2. True. Yes, generally, DCF calculation assumes that cashflows have occured at the end of period. However, it is not very difficult to make adjustments in case cashflows occur in the beginning of the period.

3.True. The annuity table essentially adds up the values of present value factors in each year, assuming that the cashflows are same for each year. So, ideally, the table should be used in case of an "annuity" which means a uniform payment over many years.

4. True. The Present Vlaue of Perpetuity is equal to the Cash Flow divided by the interest rate or yield.