Question

9.If an analysis using a cost of capital of 4.5% is performed on a project, and it shows that the project would make a profit of $10,000 over a 20 year period, then that project is guaranteed to make $10,000, no matter what!   

Question 9 options:

	True
	False

10.You are looking to purchase a new fleet vehicle for your company, and the quoted interest rate on the purchase is 7.43% annual (compounded monthly). What effective yearly interest rate are you paying (in percent)?

Answer 1

9. The analysis of project depends on a lot of factors like forecasting cashflows, estimating cost of capital , estimation of salvage value of the project. tax rate , life of the project and so on. The estimate that a project will make $10000 is one such estimate. It is not guaranteed but it represents the estimated profit based on today's information.

Hence, the statement is FALSE

10.

7.43% annual (compounded monthly) rate is equivalent to effective monthly rate of 7.43%/12 = 0.00619167

So, the effective annual rate = (1+0.00619167)^12-1 = 0.07688318 or 7.69%

The effective yearly interest rate one is paying (in percent) is 7.69%