CFIN EXAMINATION 2026 SET QUESTIONS AND
SOLUTIONS RATED A+
✔✔A firm's dividend policy can usually be established independently of its growth plans
- ✔✔False
✔✔Dividends are the sole source of returns for shareholders - ✔✔false
✔✔It is likely that - ✔✔prudent managers have a detailed knowledge of the composition
of their shareholders and mixing asset purchase and financing decisions could cause
managers to make poor decisions
✔✔Financial risk - ✔✔is related to the amount of debit in a firm's capitalization
✔✔Financial leverage raises a share's market value until - ✔✔financial risks outweighs
the benefits
✔✔The present value of a cash flow allows an investor to assess - ✔✔The value of a
stream of cash flows in terms of the best and most certain alternatives and what
equivalent present payment would be equally acceptable in lieu of the investment under
consideration
✔✔Present value calculations allow managers to - ✔✔Choose assets which create the
most value, even if their cash flows are timed differently, choose the least expensive
forms of financing, create value for the firm
✔✔A discount factor - ✔✔is the reverse of compounding future cash flows, performs the
reverse function of a compounding interest rate, allows investors to quantify a figure
which would make them indifferent to the returns from an investment
✔✔It is possible for stock appreciation to offset a dividend reduction and create value
for shareholders - ✔✔True
✔✔If managers do not foresee investment opportunities in the coming year that are as
attractive as they have seen in the past, it is time to raise the dividend to the level that
mature companies pay. - ✔✔False
✔✔If stockholders perceive that the financial risk of a firm has increased without an
offsetting increase in earnings, then the stock price will probably fall - ✔✔True
✔✔If managers have discovered an attractive investment but financing opportunities are
not as good as they have been, they should probably delay the acquisition - ✔✔False
, ✔✔As the interest rate use to discount future cash flows is increased, present value of
the future cash inflows - ✔✔Decreases
✔✔If you invested $100 in an account that would return $121 at the end of two years,
and you discounted the returns from the investment at 10% annual interest, what is the
present value of the investment? - ✔✔$100
✔✔The point of equilibrium between the positive effects of financial risk and financial
leverage is - ✔✔dependent on the company and the industry, theoretically results in the
highest EPS
✔✔Present value calucations - ✔✔can provide managers with a means of identifying
the best investment choices
✔✔Unless an addition to working capital is permanent, it should not be considered
among the cash flows of a capital budget - ✔✔False
✔✔Capital budgeting includes - ✔✔generation of ideas, evaluation and ranking of
alternatives, selection and monitoring of investments
✔✔A future feasibility study to determine the environmental impact of a planned
investment should not be included in the incremental cash flows of an investment
analysis - ✔✔False
✔✔Which of the following would not be included among the investment numbers of a
capital budget> - ✔✔Reduction in labor cost from new asset
✔✔Capital gains are a tax consequence of the sale of an old asset if - ✔✔the asset is
sold for more than the book value
✔✔A differential analysis - ✔✔Can be used to compare any set of alternatives, is easier
to comprehend if a consistent frame of reference is employed
✔✔Residual Cash flows are estimated when - ✔✔The useful lives of alternatives are
different, one asset has a shorter economic life than its alternatives
✔✔For capital budgeting purposes, an asset's depreciable life is - ✔✔an arbitrary period
dictated by the tax code
✔✔Salvage value - ✔✔is the best prediction of what an asset could be sold for at the
end of the time horizon and should not be used to justify marginally profitable
investments, because salvage values are difficult to accurately predict
SOLUTIONS RATED A+
✔✔A firm's dividend policy can usually be established independently of its growth plans
- ✔✔False
✔✔Dividends are the sole source of returns for shareholders - ✔✔false
✔✔It is likely that - ✔✔prudent managers have a detailed knowledge of the composition
of their shareholders and mixing asset purchase and financing decisions could cause
managers to make poor decisions
✔✔Financial risk - ✔✔is related to the amount of debit in a firm's capitalization
✔✔Financial leverage raises a share's market value until - ✔✔financial risks outweighs
the benefits
✔✔The present value of a cash flow allows an investor to assess - ✔✔The value of a
stream of cash flows in terms of the best and most certain alternatives and what
equivalent present payment would be equally acceptable in lieu of the investment under
consideration
✔✔Present value calculations allow managers to - ✔✔Choose assets which create the
most value, even if their cash flows are timed differently, choose the least expensive
forms of financing, create value for the firm
✔✔A discount factor - ✔✔is the reverse of compounding future cash flows, performs the
reverse function of a compounding interest rate, allows investors to quantify a figure
which would make them indifferent to the returns from an investment
✔✔It is possible for stock appreciation to offset a dividend reduction and create value
for shareholders - ✔✔True
✔✔If managers do not foresee investment opportunities in the coming year that are as
attractive as they have seen in the past, it is time to raise the dividend to the level that
mature companies pay. - ✔✔False
✔✔If stockholders perceive that the financial risk of a firm has increased without an
offsetting increase in earnings, then the stock price will probably fall - ✔✔True
✔✔If managers have discovered an attractive investment but financing opportunities are
not as good as they have been, they should probably delay the acquisition - ✔✔False
, ✔✔As the interest rate use to discount future cash flows is increased, present value of
the future cash inflows - ✔✔Decreases
✔✔If you invested $100 in an account that would return $121 at the end of two years,
and you discounted the returns from the investment at 10% annual interest, what is the
present value of the investment? - ✔✔$100
✔✔The point of equilibrium between the positive effects of financial risk and financial
leverage is - ✔✔dependent on the company and the industry, theoretically results in the
highest EPS
✔✔Present value calucations - ✔✔can provide managers with a means of identifying
the best investment choices
✔✔Unless an addition to working capital is permanent, it should not be considered
among the cash flows of a capital budget - ✔✔False
✔✔Capital budgeting includes - ✔✔generation of ideas, evaluation and ranking of
alternatives, selection and monitoring of investments
✔✔A future feasibility study to determine the environmental impact of a planned
investment should not be included in the incremental cash flows of an investment
analysis - ✔✔False
✔✔Which of the following would not be included among the investment numbers of a
capital budget> - ✔✔Reduction in labor cost from new asset
✔✔Capital gains are a tax consequence of the sale of an old asset if - ✔✔the asset is
sold for more than the book value
✔✔A differential analysis - ✔✔Can be used to compare any set of alternatives, is easier
to comprehend if a consistent frame of reference is employed
✔✔Residual Cash flows are estimated when - ✔✔The useful lives of alternatives are
different, one asset has a shorter economic life than its alternatives
✔✔For capital budgeting purposes, an asset's depreciable life is - ✔✔an arbitrary period
dictated by the tax code
✔✔Salvage value - ✔✔is the best prediction of what an asset could be sold for at the
end of the time horizon and should not be used to justify marginally profitable
investments, because salvage values are difficult to accurately predict
