51. is the discount rate at which the net present value of an investment is equal to zero. –$10 billion. 1. The difference between gross investment and net investment is: equal to capital consumption allowances : In the United States, annual per-capita GDP in 2009 was around : $46,500: As defined in our text, private domestic investment (I) does NOT include: investment in labor productivity through education and training Suppose a country is experiencing balanced trade: Saving (greater/less/equal to) Investment C+I+G (greater/less/equal to) Y Net Capital Outflow (greater/less/equal to) 0 0 (greater/less/equal to) Net exports Imports (greater/less/equal to) Exports C= consumption I = investment G = government Y = GDP Appreciate the help guys. With planned saving and investment being equal, the economy is in a state of equilibrium — there are no forces at work changing the level of output or income. Year 4: $55,000. Page 23 An investment should be accepted if, and only if, the NPV is exactly equal to zero. A. Remember that investment leads to the accumulation of capital which leads to increased labor productivity which leads to economic growth (which is a good thing). Solution: The cash inflow generated by the project is uneven. So having high amounts of savings is good for economic growth. Year 2: $80,000. At this level of income autonomous planned investment is 100, thereby bringing total planned expenditure (consumption + investment) equal to the level of output (or income). This shows that the total amount of savings occurring in the economy is equal to the amount being invested. In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: –$25 billion. Which one of the following statements concerning net present value (NPV) is correct? Year 3: $60,000. A project requires an initial investment of $225,000 and is expected to generate the following net cash inflows: Year 1: $95,000. The term “net investment income” shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b). E) Discounted payback period. D) Profitability index. A lease is an arrangement under which a lessor agrees to allow a lessee to control the use of identified property, plant, and equipment for a stated period of time in exchange for one or more payments. Put another way, it is the compound annual return an investor expects to earn (or actually earned) over the life of an investment. This preview shows page 10 - 13 out of 38 pages.. 31) _____ A) B) C) D) E) Net investment is equal to gross investment minus depreciation. C) Average accounting return. The discount rate that makes the net present value of an investment exactly equal to zero is the: A) Payback period. Lease Classifications for a Lessee. The following equation illustrates that GDP is calculated by summing consumption (C), investment (I), government spending on goods and services (G), and net exports (NX): GDP = C + I + G + NX Because total expenditure on goods and services produced within a country must equal a nation's total income, the equation can also be written as follows, where Y is income: Y = C + I + G + NX 5.2. Which of the following is a definition of Tobin’s q? B) Internal rate of return. a) the growth rate of the quantity of money b) a firm’s optimal capital stock divided by its actual capital stock c) the ratio of a firm’s stock market valuation to the value of its physical assets d) the ratio: gross investment/net investment Thanks. In other words, it is the expected compound annual rate of return that will be earned on a project or investment.) There are several types of lease designations, which differ if an entity is the lessee or the lessor. Required: Compute net present value of the project if the minimum desired rate of return is 12%.