Multiple choice

1. If the friend offers to pay you $1 five years from today, the net present value will:
A)be higher than $1.
B)depend upon the interest rate offered.
C)be equal to zero since you don't have the dollar.
D)not be important in understanding the time value of money.

2.William installs custom sound systems in cars. If he installs seven systems per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. William will install only eight sound systems per day if the eighth customer is willing to pay at least:
A) $300.
B) $400.
C) $100.
D) $50.

And your selections are?

Sra

1. B)

2.I don't know.Can you explain to me?

To answer these multiple-choice questions, we need to understand the concepts being presented in each question.

1. The first question is about the net present value (NPV) and its relationship to a future payment. The net present value is a financial concept that calculates the value of cash flows at the present time. It takes into account the time value of money, which means that a dollar received in the future is worth less than a dollar received today.

In this case, if a friend offers to pay you $1 five years from today, the net present value will depend on the interest rate offered. The present value of the future $1 will be higher or lower depending on the interest rate used to discount the future cash flow. Therefore, the correct answer is B) depend upon the interest rate offered.

2. The second question is about the installation of sound systems and finding the minimum price that the eighth customer should pay. We are given two scenarios with different costs for different daily installations.

Scenario 1: Installing 7 systems per day costs $300.
Scenario 2: Installing 8 systems per day costs $400.

To find the minimum price the eighth customer should pay, we need to determine the additional cost of installing the eighth system per day. The difference in costs between the two scenarios is $400 - $300 = $100.

Therefore, the eighth customer should be willing to pay at least $100. Thus, the correct answer is C) $100.

In summary:
1. The net present value is dependent on the interest rate offered, so the answer is B) depend upon the interest rate offered.
2. The eighth customer should be willing to pay at least $100, so the answer is C) $100.