FIN 6100 Exam 3 Questions & Answers, Well Elaborated |
Already Verified Test |100% Verified solutions |2026 Latest!!
What is cash flow? - (ANSWERS)the cash available to return to investors
and other sources of financing.
What are the 3 main rules of cash flows? - (ANSWERS)1. Based on
Net/after tax cash flows
2. Always adjust for the time value of money
3. Must include all cash flows related, including opportunity costs.
What are decision rules? - (ANSWERS)methods that we use in the
evaluation of projects to see what we want to invest in
5 types of decision rules - (ANSWERS)1. Payback Period
2. Discounted Payback Period
3. IRR
4. NPV
5. Profitability index
Pros and Cons of the Payback period method
(2, 4) - (ANSWERS)Pros:
- focus on recovering funds quickly
, FIN 6100 Exam 3 Questions & Answers, Well Elaborated |
Already Verified Test |100% Verified solutions |2026 Latest!!
- easy to understand/teach
Cons:
- short term focus at the expense of long term profit
- ignores timing and the magnitude of later cash flows.
- ignores risk
- doesn't allow ranking
What does it mean if the IRR is larger than the WACC? - (ANSWERS)that
we are earning more than what it costs us. Making profit.
Pros and Cons of IRR (3, 2) - (ANSWERS)Pros:
- incorporates risk of cash flows.
- accounts for timing of cash flows
- allows for ranking based on return.
Cons:
- does not show magnitude of earnings.
- cannot have more than 1 neg. Cash flow.
What is the best and worst method for project selection? -
(ANSWERS)Best: NPV
Already Verified Test |100% Verified solutions |2026 Latest!!
What is cash flow? - (ANSWERS)the cash available to return to investors
and other sources of financing.
What are the 3 main rules of cash flows? - (ANSWERS)1. Based on
Net/after tax cash flows
2. Always adjust for the time value of money
3. Must include all cash flows related, including opportunity costs.
What are decision rules? - (ANSWERS)methods that we use in the
evaluation of projects to see what we want to invest in
5 types of decision rules - (ANSWERS)1. Payback Period
2. Discounted Payback Period
3. IRR
4. NPV
5. Profitability index
Pros and Cons of the Payback period method
(2, 4) - (ANSWERS)Pros:
- focus on recovering funds quickly
, FIN 6100 Exam 3 Questions & Answers, Well Elaborated |
Already Verified Test |100% Verified solutions |2026 Latest!!
- easy to understand/teach
Cons:
- short term focus at the expense of long term profit
- ignores timing and the magnitude of later cash flows.
- ignores risk
- doesn't allow ranking
What does it mean if the IRR is larger than the WACC? - (ANSWERS)that
we are earning more than what it costs us. Making profit.
Pros and Cons of IRR (3, 2) - (ANSWERS)Pros:
- incorporates risk of cash flows.
- accounts for timing of cash flows
- allows for ranking based on return.
Cons:
- does not show magnitude of earnings.
- cannot have more than 1 neg. Cash flow.
What is the best and worst method for project selection? -
(ANSWERS)Best: NPV
