Flashcards in Chapter 6 - Evaluating Financial Impact Deck (30)

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1

## What is it called when we add interest earned each period to the principal for purposes of computing interest for the next period?

### Compound interest

2

## Does compound or simple interest have a greater total value?

### Compound interest

3

## What is used by most financial institutions?

### Compound interest

4

## What is an equivalent yearly simple interest rate that takes compounding into account?

### Annual percentage yield (APY)

5

## What reflects interest being paid on the actual amount borrowed?

### Annual percentage rate (APR)

6

## List 5 financial functions that perform calculations that help determine the most feasible financing option

###
1. PMT

2. RATE

3. NPER

4. PV

5. FV

7

## Which function finds the value of the payment per period, assuming there are constant payments and a constant interest rate for the duration of the loan?

### PMT function

8

##
True or False:

Financial functions apply the interest rate per period and the payment per period to the principal value over a specified number of periods

### True

9

## When do you use the PMT function?

### When you are determining a loan payment

10

## Which function calculates the interest rate per period?

### RATE

11

## Which function calculates the number of periods?

### NPER

12

## Which function calculates the initial value?

### PV

13

## Which function calculates the final value?

### FV

14

##
Fill in the Blanks:

When using the type argument _ represents the beginning of the period and _ represents the end of the period

###
1. 0

2. 1

15

## What is the amount of money coming into or out of a company each year?

### Cash flow

16

## What is the process by which a company spreads the expense of an asset over its useful life?

### Depreciation

17

## What is a standard method of detailing a loan transaction?

### The amortization schedule

18

## What lists the remaining principal and the value of the payment apportioned to interest expense and to paying down the principal?

### The amortization schedule

19

## Which function calculates the value of the interest payment for a specified period?

### The IPMT function

20

## Which function calculates the value of the principal payment for a specified period?

### The PPMT function

21

## Which function automatically calculates the interest values between a start period and an end period?

### The CUMIPMT function

22

## Which function automatically calculates the principal values between a start period and an end period?

### The CUMPRINC function

23

## What is an approximation of the actual depreciation allowed by the tax code?

### The straight line depreciation method

24

## Which function computes depreciation at an accelerated rate?

### The double-declining balance function

25

## What uses expected cash flows and applies a minimum rate of return to discount these cash flows into present value dollars?

### Net present value

26

## What considers the cash flows and discounts them back to the present value?

### Internal rate of return (IRR)

27

## What calculates the rate at which the discounted cash flows in and out are equal?

### Internal rate of return (IRR)

28

## What is the sum of the cash flows, excluding initial investment, divided by the investment value?

### Return on investment (ROI)

29

## What is the time it will take to earn sufficient profits so the loan can be paid back?

### The payback period

30