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Exam 11: Input Demand: the Capital Market and the Investment Decision

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Question 61

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Refer to the data provided in Table 11.2 below to answer the following question(s) . Table 11.2 $\begin{array}{l}\begin{array} { l c c } &\text { Total Investment }&\text {Expected Rate of Return }\\ { \text { Project } } & \text { (dollars) } & \text { (percentage) } \\\hline \text { New bookkeeping software } & \$ 150,000 & 5 \\\text { New tractor } & \$ 200,000 & 12 \\\text { New grain storage tanks } & \$ 250,000 & 10 \\\text { Irrigation system } & \$ 500,000 & 15 \\\hline\end{array}\end{array}$ -Refer to Table 11.2. If the interest rate is 11%, then the farmer will only

A) buy the bookkeeping software.
B) buy the bookkeeping software and the grain storage tanks.
C) buy the tractor and the irrigation system.
D) buy the tractor.

E) A) and B)
F) A) and C)

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Question 62

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You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food store. You will earn an economic profit if the return on your investment is

A) greater than 5%.
B) 5%.
C) between 0 and 5%.
D) 10% or greater.

E) C) and D)
F) All of the above

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Question 63

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Owning a share of stock entitles the shareholder to a portion of the firm's profits.

Refer to the information provided in Figure 11.1 below to answer the question(s) that follow. Figure 11.1 -Refer to Figure 11.1. If the market rate of interest is 5%, this firm's investment will total

Refer to the data provided in Table 11.2 below to answer the following question(s) . Table 11.2 $\begin{array}{l}\begin{array} { l c c } &\text { Total Investment }&\text {Expected Rate of Return }\\ { \text { Project } } & \text { (dollars) } & \text { (percentage) } \\\hline \text { New bookkeeping software } & \$ 150,000 & 5 \\\text { New tractor } & \$ 200,000 & 12 \\\text { New grain storage tanks } & \$ 250,000 & 10 \\\text { Irrigation system } & \$ 500,000 & 15 \\\hline\end{array}\end{array}$ -Ceteris paribus, when market interest rates ________, ________ investment projects are undertaken.

Refer to the data provided in Table 11.1 below to answer the following question(s) . Table 11.1 $\begin{array}{l}\begin{array} { l c c } &\text { Total Investment }&\text {Expected Rate of Return }\\ { \text { Project } } & \text { (dollars) } & \text { (percentage) } \\\hline \text { New tablet computer for sales staff } & \$ 500,000 & 22 \\\text { Remodel for distribution center } & \$ 400,000 & 18 \\\text { On-site day care center } & \$ 200,000 & 10 \\\text { Employee fitness center } & \$ 100,000 & 8\end{array}\end{array}$ -Refer to Table 11.1. If the interest rate is 9%, Nashbar Bicycle's total investment would be

Infrastructure, such as public works and public services, is also referred to as

If the interest rate is 4 percent, to get back $200 in one year you would need to deposit ________ today.

A firm will only invest when the marginal revenue product of capital is less than its rental cost.

Saying a firm will continue investing up to the point at which ________ is equivalent to saying that a firm will keep investing in new capital up to the point where the expected rate of return is equal to the interest rate.

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a correct prediction based on this information?

You use $50,000 of your own money to start an espresso stand. During the first year you earn a 10% return on that investment. If the current interest rate on savings is 8%, you earn an economic profit of

You lend your sister's daughter $2,000 for a year, and at the end of the year she pays you $2,180. The interest rate you are charging her is

The benefits of any investment project take the form of future profits.

The payments made for the use of money are called investment.

Payments for capital include investment and profit.

Assume that the current interest rate is 6%. You invest $10,000 of your own money in a restaurant that you own and operate. The normal return on this investment is

Capital stock is defined as the retail value that was paid for a firm's productive assets.

Refer to the data provided in Table 11.4 below to answer the following question(s) . Table 11.4 $\begin{array}{l}\begin{array} { l c c } &\text { Total Investment }&\text {Expected Rate of Return }\\ { \text { Project } } & \text { (dollars) } & \text { (percentage) } \\\hline \text { New bookkeeping software } & \$ 300,000 & 10 \\\text { New tractor } & \$ 400,000 & 24 \\\text { New grain storage tanks } & \$ 500,000 & 20 \\\text { Irrigation system } & \$ 1,000,000 & 30\end{array}\end{array}$ -Refer to Table 11.4. If the interest rate is 22%, then the farmer will only

Suppose that a national election occurs that generates a feeling of certainty in the market. It is likely that this incident will ________ the level of investment spending.