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Future Worth Analysis

Description: This quiz covers the concept of Future Worth Analysis, a method used in engineering economics to determine the future value of a series of cash flows.
Number of Questions: 14
Created by:
Tags: engineering economics future worth analysis time value of money
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What is the formula for calculating the future worth of a single cash flow?

  1. FW = PV * (1 + i)^n

  2. FW = PV / (1 + i)^n

  3. FW = PV * (1 - i)^n

  4. FW = PV / (1 - i)^n

Show answer
Correct Option: A
Explanation:

The future worth of a single cash flow is calculated by multiplying the present value by (1 + i)^n, where i is the interest rate and n is the number of years.

What is the formula for calculating the future worth of a series of cash flows?

  1. FW = PV * (1 + i)^n

  2. FW = PV / (1 + i)^n

  3. FW = PV * (1 - i)^n

  4. FW = PV / (1 - i)^n

Show answer
Correct Option: A
Explanation:

The future worth of a series of cash flows is calculated by multiplying the present value by (1 + i)^n, where i is the interest rate and n is the number of years.

What is the difference between future worth and present worth?

  1. Future worth is the value of a cash flow at a future date, while present worth is the value of a cash flow today.

  2. Future worth is the value of a cash flow today, while present worth is the value of a cash flow at a future date.

  3. Future worth and present worth are the same thing.

  4. Future worth and present worth are not related.

Show answer
Correct Option: A
Explanation:

Future worth is the value of a cash flow at a future date, while present worth is the value of a cash flow today. This difference is due to the time value of money, which states that a dollar today is worth more than a dollar in the future.

What is the effect of interest rate on future worth?

  1. Future worth increases as interest rate increases.

  2. Future worth decreases as interest rate increases.

  3. Future worth is not affected by interest rate.

  4. Future worth is inversely proportional to interest rate.

Show answer
Correct Option: A
Explanation:

Future worth increases as interest rate increases because the money grows at a faster rate.

What is the effect of number of years on future worth?

  1. Future worth increases as number of years increases.

  2. Future worth decreases as number of years increases.

  3. Future worth is not affected by number of years.

  4. Future worth is inversely proportional to number of years.

Show answer
Correct Option: A
Explanation:

Future worth increases as number of years increases because the money has more time to grow.

What is the formula for calculating the future worth of an annuity?

  1. FW = PV * (1 + i)^n

  2. FW = PV / (1 + i)^n

  3. FW = PV * (1 - i)^n

  4. FW = PV / (1 - i)^n

Show answer
Correct Option:
Explanation:

The future worth of an annuity is calculated by multiplying the present value by ((1 + i)^n - 1) / i, where i is the interest rate and n is the number of years.

What is the formula for calculating the future worth of a perpetuity?

  1. FW = PV * (1 + i)^n

  2. FW = PV / (1 + i)^n

  3. FW = PV * (1 - i)^n

  4. FW = PV / (1 - i)^n

Show answer
Correct Option:
Explanation:

The future worth of a perpetuity is calculated by dividing the present value by the interest rate.

What is the relationship between future worth and present worth?

  1. Future worth is always greater than present worth.

  2. Future worth is always less than present worth.

  3. Future worth is equal to present worth.

  4. Future worth and present worth are not related.

Show answer
Correct Option: A
Explanation:

Future worth is always greater than present worth because of the time value of money.

What is the sinking fund factor?

  1. The sinking fund factor is the present value of an annuity that will accumulate to a future value of $1.

  2. The sinking fund factor is the future value of an annuity that will accumulate to a present value of $1.

  3. The sinking fund factor is the present value of a perpetuity that will accumulate to a future value of $1.

  4. The sinking fund factor is the future value of a perpetuity that will accumulate to a present value of $1.

Show answer
Correct Option: A
Explanation:

The sinking fund factor is the present value of an annuity that will accumulate to a future value of $1.

What is the capital recovery factor?

  1. The capital recovery factor is the present value of an annuity that will repay a loan of $1.

  2. The capital recovery factor is the future value of an annuity that will repay a loan of $1.

  3. The capital recovery factor is the present value of a perpetuity that will repay a loan of $1.

  4. The capital recovery factor is the future value of a perpetuity that will repay a loan of $1.

Show answer
Correct Option: A
Explanation:

The capital recovery factor is the present value of an annuity that will repay a loan of $1.

What is the payback period?

  1. The payback period is the time it takes for an investment to generate enough cash flow to cover the initial investment.

  2. The payback period is the time it takes for an investment to generate enough cash flow to cover the operating costs.

  3. The payback period is the time it takes for an investment to generate enough cash flow to cover the maintenance costs.

  4. The payback period is the time it takes for an investment to generate enough cash flow to cover the depreciation costs.

Show answer
Correct Option: A
Explanation:

The payback period is the time it takes for an investment to generate enough cash flow to cover the initial investment.

What is the net present value?

  1. The net present value is the difference between the present value of the cash inflows and the present value of the cash outflows.

  2. The net present value is the difference between the future value of the cash inflows and the future value of the cash outflows.

  3. The net present value is the difference between the present value of the cash inflows and the future value of the cash outflows.

  4. The net present value is the difference between the future value of the cash inflows and the present value of the cash outflows.

Show answer
Correct Option: A
Explanation:

The net present value is the difference between the present value of the cash inflows and the present value of the cash outflows.

What is the internal rate of return?

  1. The internal rate of return is the discount rate that makes the net present value of an investment equal to zero.

  2. The internal rate of return is the discount rate that makes the future value of an investment equal to zero.

  3. The internal rate of return is the discount rate that makes the present value of the cash inflows equal to the present value of the cash outflows.

  4. The internal rate of return is the discount rate that makes the future value of the cash inflows equal to the future value of the cash outflows.

Show answer
Correct Option: A
Explanation:

The internal rate of return is the discount rate that makes the net present value of an investment equal to zero.

What is the modified internal rate of return?

  1. The modified internal rate of return is the internal rate of return that is adjusted for the reinvestment rate.

  2. The modified internal rate of return is the internal rate of return that is adjusted for the inflation rate.

  3. The modified internal rate of return is the internal rate of return that is adjusted for the risk rate.

  4. The modified internal rate of return is the internal rate of return that is adjusted for the tax rate.

Show answer
Correct Option: A
Explanation:

The modified internal rate of return is the internal rate of return that is adjusted for the reinvestment rate.

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