$100 Today Is Worth

question 10

Multiple Choice

$100 today is worth

• A) the same as $100 to be received in one year, since the inflation rate has been low recently and funds received in the near future should have the same purchasing power that they have today.
• B) less than $100 to be received in one year, since many people will spend money foolishly today and will become more careful in their spending habits as they mature.
• C) more than $100 to be received in one year, since you can invest the money received today for this period, leaving you with more than $100 in the future.
• D) the same as a future receipt of $100, since the physical characteristics of U.S. currency are unchanged for long periods of time.
• E) less than $100 received by someone ten years ago, since many products have been improved over this time period.

Apply net present value (NPV) and internal rate of return (IRR) methods to evaluate investment opportunities.

Calculate and interpret the payback period for investments.

Understand the impact of salvage value and depreciation on the economics of investment projects.

Analyze the effect of working capital changes on investment cash flows.

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Definitions:

Marginal Cost Pricing

Setting the price of a good or service equal to the additional cost of producing one extra unit. This strategy is often used to achieve efficiency in markets.

Uneconomic Substitution

Involves replacing one factor of production with another in a way that leads to inefficient or increased costs.

Creative Accounting

The manipulation of financial records and reports to give a more favorable image of a company's financial position than is justified.

Regulation

involves the establishment of rules or laws designed to control or govern conduct, typically enacted by a government body.