FIN3400 FINAL REVIEW PREP QUESTIONS AND ANSWERS | WINTER 2026 | RATED 100%
CORRECT.
market values - (ANSWER)When calculating the weighted average cost of capital, weights are based on:
a weighted average of the capital components costs - (ANSWER)When firms use multiple sources of
capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:
because we are interested in determining what the cost of financing the firm's assets would be given
today's market situation and the component costs the firm currently faces, not what the historical prices
would have been - (ANSWER)Why do we use market-value weights instead of book-value weights?
divisional wacc - (ANSWER)An estimated WACC computed using some sort of proxy for the average
equity risk of the projects in a particular business unit is known as the:
commissions to the underwriting firm that floats the issue - (ANSWER)Flotation costs are:
financing costs - (ANSWER)Concerning incremental project cash flow, which of these is a cost one would
never count as an expense of the project?
financing costs - (ANSWER)All of the following are incremental cash flows attributable to the project
EXCEPT:
sunk cost - (ANSWER)AB Mining Company just commissioned a firm to identify if an unused portion of
their mine contains any silver or gold at a cost of $125,000. This is an example of a(n):
product life cycle - (ANSWER)Which of these is the concept that a unit's sales will follow an approximate
bell-shaped curve versus a steady sales life?
depreciable basis - (ANSWER)An asset's cost plus the amounts you paid for items such as sales tax,
freight charges, and installation and testing fees is referred to as the: ___________________.
opportunity cost - (ANSWER)Which of the following is defined as the cost or forgone opportunity of
using an asset already in use by the firm, or a person already employed by the firm, in a new project?
,FIN3400 FINAL REVIEW PREP QUESTIONS AND ANSWERS | WINTER 2026 | RATED 100%
CORRECT.
just in time - (ANSWER)A production strategy that attempts to improve a firm's return on investment by
reducing in-process inventory and associated carrying costs as much as possible is which of the
following?
asset based loan - (ANSWER)Which of these is a short-term loan secured by a company's assets?
compensating balance - (ANSWER)Which of these is the requirement of the firm to keep a certain
percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to
lend money to the firm?
commercial loan - (ANSWER)For most businesses, particularly smaller ones, the most common way to
cover a short-term financing need is to apply at a bank for which of the following?
26.64%
(60,000,000 × 10)/(80,000,000 × 20 + 60,000,000 × 10 + 50,000 × 1.05 × 1,000) = 600m/2252.5m = 26.64
percent - (ANSWER)Paper Exchange has 80 million shares of common stock outstanding, 60 million
shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $20
per share, the preferred shares are selling for $10 per share, and the bonds are selling for 105 percent of
par, what would be the weight used for preferred stock in the computation of Paper's WACC?
26.64%
114.5 × 1/[26 × 12 + 114.5 × 1 + 980 × 0.01] = 26.24 percent - (ANSWER)FarCry Industries, a maker of
telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares of
preferred stock outstanding, and 10 thousand bonds. If the common shares sell for $12 per share, the
preferred shares sell for $114.50 per share, and the bonds sell for 98percent of par ($1,000), what
weight should you use for preferred stock in the computation of FarCry's WACC?
7.40%
, FIN3400 FINAL REVIEW PREP QUESTIONS AND ANSWERS | WINTER 2026 | RATED 100%
CORRECT.
PV = -990; FV = 1000; PMT = 72.50; N = 10; I = 7.40 percent - (ANSWER)Oberon Inc. has a $20 million
($1,000 face value) 10-year bond issue selling for 99 percent of par that pays an annual coupon of 7.25
percent. What would be Oberon's before-tax component cost of debt?
7.34%
PV = 1060; FV = 1000; N = 30; PMT = 40; I = 3.67; 3.67 × 2 = 7.34 percent - (ANSWER)KatyDid Clothes has
a $150 million ($1,000 face value) 15-year bond issue selling for 106 percent of par that carries a coupon
rate of 8 percent, paid semi-annually. What would be KatyDid's before-tax component cost of debt?
7.74 percent; 4.95 percent
Step 1: PV = -1110; FV = 1000; N = 15; PMT = 90; I = 7.74%; Step 2: 7.74%(1 - 0.36) = 4.95% -
(ANSWER)ADK has 30,000 15-year 9 percent annual coupon bonds outstanding. If the bonds currently
sell for 111 percent of par and the firm pays an average tax rate of 36 percent, what will be the before-
tax and after-tax component cost of debt?
$92,000
AT CF = $95,000 + ($90,000 - $95,000) × (1 - 0.4) = $92,000 - (ANSWER)Suppose you sell a fixed asset for
$90,000 when its book value is $95,000. If your company's marginal tax rate is 40 percent, what will be
the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
+ $3,500
12,000 - 8,500 = $3,500 - (ANSWER)A new project would require an immediate increase in raw materials
in the amount of $12,000. The firm expects that accounts payable will automatically increase $8,500.
How much must the firm expect its investment in net working capital to change if they accept this
project?
$24,000
CORRECT.
market values - (ANSWER)When calculating the weighted average cost of capital, weights are based on:
a weighted average of the capital components costs - (ANSWER)When firms use multiple sources of
capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:
because we are interested in determining what the cost of financing the firm's assets would be given
today's market situation and the component costs the firm currently faces, not what the historical prices
would have been - (ANSWER)Why do we use market-value weights instead of book-value weights?
divisional wacc - (ANSWER)An estimated WACC computed using some sort of proxy for the average
equity risk of the projects in a particular business unit is known as the:
commissions to the underwriting firm that floats the issue - (ANSWER)Flotation costs are:
financing costs - (ANSWER)Concerning incremental project cash flow, which of these is a cost one would
never count as an expense of the project?
financing costs - (ANSWER)All of the following are incremental cash flows attributable to the project
EXCEPT:
sunk cost - (ANSWER)AB Mining Company just commissioned a firm to identify if an unused portion of
their mine contains any silver or gold at a cost of $125,000. This is an example of a(n):
product life cycle - (ANSWER)Which of these is the concept that a unit's sales will follow an approximate
bell-shaped curve versus a steady sales life?
depreciable basis - (ANSWER)An asset's cost plus the amounts you paid for items such as sales tax,
freight charges, and installation and testing fees is referred to as the: ___________________.
opportunity cost - (ANSWER)Which of the following is defined as the cost or forgone opportunity of
using an asset already in use by the firm, or a person already employed by the firm, in a new project?
,FIN3400 FINAL REVIEW PREP QUESTIONS AND ANSWERS | WINTER 2026 | RATED 100%
CORRECT.
just in time - (ANSWER)A production strategy that attempts to improve a firm's return on investment by
reducing in-process inventory and associated carrying costs as much as possible is which of the
following?
asset based loan - (ANSWER)Which of these is a short-term loan secured by a company's assets?
compensating balance - (ANSWER)Which of these is the requirement of the firm to keep a certain
percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to
lend money to the firm?
commercial loan - (ANSWER)For most businesses, particularly smaller ones, the most common way to
cover a short-term financing need is to apply at a bank for which of the following?
26.64%
(60,000,000 × 10)/(80,000,000 × 20 + 60,000,000 × 10 + 50,000 × 1.05 × 1,000) = 600m/2252.5m = 26.64
percent - (ANSWER)Paper Exchange has 80 million shares of common stock outstanding, 60 million
shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $20
per share, the preferred shares are selling for $10 per share, and the bonds are selling for 105 percent of
par, what would be the weight used for preferred stock in the computation of Paper's WACC?
26.64%
114.5 × 1/[26 × 12 + 114.5 × 1 + 980 × 0.01] = 26.24 percent - (ANSWER)FarCry Industries, a maker of
telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares of
preferred stock outstanding, and 10 thousand bonds. If the common shares sell for $12 per share, the
preferred shares sell for $114.50 per share, and the bonds sell for 98percent of par ($1,000), what
weight should you use for preferred stock in the computation of FarCry's WACC?
7.40%
, FIN3400 FINAL REVIEW PREP QUESTIONS AND ANSWERS | WINTER 2026 | RATED 100%
CORRECT.
PV = -990; FV = 1000; PMT = 72.50; N = 10; I = 7.40 percent - (ANSWER)Oberon Inc. has a $20 million
($1,000 face value) 10-year bond issue selling for 99 percent of par that pays an annual coupon of 7.25
percent. What would be Oberon's before-tax component cost of debt?
7.34%
PV = 1060; FV = 1000; N = 30; PMT = 40; I = 3.67; 3.67 × 2 = 7.34 percent - (ANSWER)KatyDid Clothes has
a $150 million ($1,000 face value) 15-year bond issue selling for 106 percent of par that carries a coupon
rate of 8 percent, paid semi-annually. What would be KatyDid's before-tax component cost of debt?
7.74 percent; 4.95 percent
Step 1: PV = -1110; FV = 1000; N = 15; PMT = 90; I = 7.74%; Step 2: 7.74%(1 - 0.36) = 4.95% -
(ANSWER)ADK has 30,000 15-year 9 percent annual coupon bonds outstanding. If the bonds currently
sell for 111 percent of par and the firm pays an average tax rate of 36 percent, what will be the before-
tax and after-tax component cost of debt?
$92,000
AT CF = $95,000 + ($90,000 - $95,000) × (1 - 0.4) = $92,000 - (ANSWER)Suppose you sell a fixed asset for
$90,000 when its book value is $95,000. If your company's marginal tax rate is 40 percent, what will be
the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
+ $3,500
12,000 - 8,500 = $3,500 - (ANSWER)A new project would require an immediate increase in raw materials
in the amount of $12,000. The firm expects that accounts payable will automatically increase $8,500.
How much must the firm expect its investment in net working capital to change if they accept this
project?
$24,000
