SHORT ANSWER QUESTIONS 1. What is the difference between simple and compound interest? Provide an example. 2. What is the difference between the nominal annual interest rate and the effective an- nual interest rate? When are these two rates equal? 3. You work in the summer and receive three large, equal monthly paychecks in June, July, and August. You are living at home, so there are no living expenses. You use this money to pay your tuition for the next academic year in September and in Janu- ary. You also use this money to pay monthly living expenses during the academic year, which are assumed to be cash flows once per month from September through May. Illustrate these cash flows on a cash flow diagram 4. Discuss the differences and similarities between interest, inflation, and the time 5. What term describes the method by which a fixed capital investment can be used to 6. What is depreciation? Explain how it affects the economic analysis of a new chemi- 7. Why is it advantageous to use an accelerated depreciation schedule value of money. reduce the tax that a company pays? cal process eneral, it is better to depreciate the fixed capital investment as soon as allow- able." Give one example of when this statement would not be true. 9. What is the difference between after-tax profit and after-tax cash flow? When are these two quantities the same