A firm will have constant profits of $100,000 per year for the next four years and the interest rate is six percent. Assuming these profits are realized at the end of each year, what is the present value these future profits?

## MCQ contributes by Shah Alom

A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is seven percent, what is the net present value of purchasing the tractor?

- None of the statements associated with this question are correct

### When dealing with present value, a higher interest rate:

- Decreases the present value of a future amount

### If the interest rate is five percent, the present value of $200 received at the end of five years is:

- $156.71

### If you put $1,000 in a savings account at an interest rate of 10%, how much money will you have in one year?

- $1,100

### If the interest rate is 5%, what is the present value of ten dollars received one year from now?

- $9.52

### The opportunity cost of receiving ten dollars in the future as opposed to getting that ten dollars today is:

- The foregone interest that could be earned if you had the money today

### Scarce resources are ultimately allocated toward the production of goods most wanted by society because:

- Firms attempt to maximize profits

**Shah Alom**