FIN 302 FINAL EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
You own 30 % of the stock of a company that has 10 directors on its board. How much representation
can you get on the board if the company has cumulative voting? How much representation can you
ensure if the company has straight voting? - Answers With cumulative voting you are able to get
proportional representation by putting all of your votes toward 3 directors, allowing you to elect
representatives to 3 seats (30 % of ten seats) on the board.
How much representation can you ensure if the company has straight voting? - Answers With non-
cumulative voting you vote on each director individually, and without a majority of the shares you
cannot ensure that your representative will win any of the elections (you could lose 70 % to 30 % in
each of the ten individual elections).
Your factory has been offered a contract to produce a part for a new printer. The contract would last
for 3 years and your cash flows from the contract would be $ 5.21 million per year. Your upfront setup
costs to be ready to produce the part would be $ 7.76 million. Your discount rate for this contract is
7.7 %.
a. What does the NPV rule say you should do? - Answers The NPV rule says that you should accept the
contract because the NPV greater than 0.
Notice that the plot line crosses zero twice long dash once at 12.4 % and again at 29.9 %. There are
two IRRs in this problem. - Answers
The IRR investment rule does not work when there is more than one IRR. - Answers
NPV and IRR rank the two projects differently because they are measuring different things. NPV is
measuring value creation, while IRR is measuring return on investment. Because returns do not scale
with different levels of investment, the two measures may give different rankings when initial
investments are different. - Answers
irr rule - Answers
Should the original purchase price of the land where the store will be located be included in the
incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
Should the cost of demolishing the abandoned warehouse and clearing the lot be included in the
incremental earnings for the proposed new retail store? - Answers Yes, this item should be included.
Should the loss of sales in the existing retail outlet, if customers who previously drove across town to
shop at the existing outlet become customers of the new store instead, be included in the
incremental earnings for the proposed new retail store? - Answers Yes, this item should be included.
Should the $ 15 comma 000 in market research spent to evaluate customer demand be included in
the incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
Should the construction costs for the new store be included in the incremental earnings for the
proposed new retail store? - Answers Yes, this item should be included.
Should the value of the land if sold be included in the incremental earnings for the proposed new
retail store? - Answers Yes, this item should be included.
Should the interest expense on the debt borrowed to pay the construction costs be included in the
incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
You have just completed a $ 16 comma 000 feasibility study for a new coffee shop in some retail
space you own. You bought the space two years ago for $ 99 comma 000, and if you sold it today, you
would net $ 111 comma 000 after taxes. Outfitting the space for a coffee shop would require a capital
expenditure of $ 28 comma 000 plus an initial investment of $ 4 comma 700 in inventory. What is the
correct initial cash flow for your analysis of the coffee shop opportunity?
Identify the relevant incremental cash flows below: - Answers Initial investment in inventory.
Amount you would net after taxes should you sell the space today.
Capital expenditure to outfit the space.
If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal
corporate tax rate is expected to remain constant, which schedule should it choose? Why? - Answers
With MACRS, the firm receives the depreciation tax shields sooner. Thus, MACRS depreciation leads
to a higher NPV of Markov's FCF.
You own 30 % of the stock of a company that has 10 directors on its board. How much representation
can you get on the board if the company has cumulative voting? How much representation can you
ensure if the company has straight voting? - Answers With cumulative voting you are able to get
proportional representation by putting all of your votes toward 3 directors, allowing you to elect
representatives to 3 seats (30 % of ten seats) on the board.
How much representation can you ensure if the company has straight voting? - Answers With non-
cumulative voting you vote on each director individually, and without a majority of the shares you
cannot ensure that your representative will win any of the elections (you could lose 70 % to 30 % in
each of the ten individual elections).
Your factory has been offered a contract to produce a part for a new printer. The contract would last
for 3 years and your cash flows from the contract would be $ 5.21 million per year. Your upfront setup
costs to be ready to produce the part would be $ 7.76 million. Your discount rate for this contract is
7.7 %.
a. What does the NPV rule say you should do? - Answers The NPV rule says that you should accept the
contract because the NPV greater than 0.
Notice that the plot line crosses zero twice long dash once at 12.4 % and again at 29.9 %. There are
two IRRs in this problem. - Answers
The IRR investment rule does not work when there is more than one IRR. - Answers
NPV and IRR rank the two projects differently because they are measuring different things. NPV is
measuring value creation, while IRR is measuring return on investment. Because returns do not scale
with different levels of investment, the two measures may give different rankings when initial
investments are different. - Answers
irr rule - Answers
Should the original purchase price of the land where the store will be located be included in the
incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
Should the cost of demolishing the abandoned warehouse and clearing the lot be included in the
incremental earnings for the proposed new retail store? - Answers Yes, this item should be included.
Should the loss of sales in the existing retail outlet, if customers who previously drove across town to
shop at the existing outlet become customers of the new store instead, be included in the
incremental earnings for the proposed new retail store? - Answers Yes, this item should be included.
Should the $ 15 comma 000 in market research spent to evaluate customer demand be included in
the incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
Should the construction costs for the new store be included in the incremental earnings for the
proposed new retail store? - Answers Yes, this item should be included.
Should the value of the land if sold be included in the incremental earnings for the proposed new
retail store? - Answers Yes, this item should be included.
Should the interest expense on the debt borrowed to pay the construction costs be included in the
incremental earnings for the proposed new retail store? - Answers No, this item should not be
included as part of the incremental earnings when evaluating the proposal.
You have just completed a $ 16 comma 000 feasibility study for a new coffee shop in some retail
space you own. You bought the space two years ago for $ 99 comma 000, and if you sold it today, you
would net $ 111 comma 000 after taxes. Outfitting the space for a coffee shop would require a capital
expenditure of $ 28 comma 000 plus an initial investment of $ 4 comma 700 in inventory. What is the
correct initial cash flow for your analysis of the coffee shop opportunity?
Identify the relevant incremental cash flows below: - Answers Initial investment in inventory.
Amount you would net after taxes should you sell the space today.
Capital expenditure to outfit the space.
If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal
corporate tax rate is expected to remain constant, which schedule should it choose? Why? - Answers
With MACRS, the firm receives the depreciation tax shields sooner. Thus, MACRS depreciation leads
to a higher NPV of Markov's FCF.
