BA 323 EXAM 3 2026 DATA MODELING AND
ANALYTICS WORKBOOK SOLVED QUESTIONS
COMPILATION
◉ Should the company use the composite WACC as the hurdle rate
for each project? Why not?
Answer: No
projects typically have different riskiness.
◉ What are flotation costs and why do they make retained earnings
cheaper than issuing new common stock?
Answer: Transaction costs
associated with issuing new securities
◉ What is capital budgeting?
Answer: Analysis of potential additions to fixed assets and rates of
return
◉ What is a company's strategic business plan?
Answer: A long plan that outlines in broad terms the firm's basic
strategy for the next 5-10 years.
,◉ What are the 5 criteria used to accept or reject a project?
Answer: - Net Present value
- Internal rate of return
- Modified internal rate of return
- Regular payback
- Discounted payback
◉ What is the difference between independent and mutually
exclusive projects?
Answer: Independent projects:
- the cash flows of one project are unaffected by the acceptance of
the other
Mutually exclusive projects
- the cash flows of one can be adversely impacted by the acceptance
of other projects.
◉ Which type of project is harder to calculate: independent or
mutually exclusive?
Answer: Mutually exclusive?
◉ Explain the difference between normal and non-normal cash flow
streams.
, Answer: Normal cash flow stream
- has an initial negative cash flow followed by a series of positive
cash inflows
Non-normal cash flow stream
- have 2 or more changes of signs.
◉ Which cash flow stream is most common: normal or non-normal?
Why?
Answer: Normal cash flow stream
◉ Know how to calculate a project's NPV and how to use NPV
decision rules to decide whether or not to accept the project.
Answer: If project NPV > 0 if independent, ACCEPT
If mutually exclusive, accept project with highest NPV
◉ What is the IRR (internal rate of return)?
Answer: The discount rate that forces the present value of the cash
inflows to equal the price of the bond. (Or forcing the NPV to equal
zero).
◉ Know how to solve for the IRR
Know the decisions rules for using IRR to accept or reject a project.
ANALYTICS WORKBOOK SOLVED QUESTIONS
COMPILATION
◉ Should the company use the composite WACC as the hurdle rate
for each project? Why not?
Answer: No
projects typically have different riskiness.
◉ What are flotation costs and why do they make retained earnings
cheaper than issuing new common stock?
Answer: Transaction costs
associated with issuing new securities
◉ What is capital budgeting?
Answer: Analysis of potential additions to fixed assets and rates of
return
◉ What is a company's strategic business plan?
Answer: A long plan that outlines in broad terms the firm's basic
strategy for the next 5-10 years.
,◉ What are the 5 criteria used to accept or reject a project?
Answer: - Net Present value
- Internal rate of return
- Modified internal rate of return
- Regular payback
- Discounted payback
◉ What is the difference between independent and mutually
exclusive projects?
Answer: Independent projects:
- the cash flows of one project are unaffected by the acceptance of
the other
Mutually exclusive projects
- the cash flows of one can be adversely impacted by the acceptance
of other projects.
◉ Which type of project is harder to calculate: independent or
mutually exclusive?
Answer: Mutually exclusive?
◉ Explain the difference between normal and non-normal cash flow
streams.
, Answer: Normal cash flow stream
- has an initial negative cash flow followed by a series of positive
cash inflows
Non-normal cash flow stream
- have 2 or more changes of signs.
◉ Which cash flow stream is most common: normal or non-normal?
Why?
Answer: Normal cash flow stream
◉ Know how to calculate a project's NPV and how to use NPV
decision rules to decide whether or not to accept the project.
Answer: If project NPV > 0 if independent, ACCEPT
If mutually exclusive, accept project with highest NPV
◉ What is the IRR (internal rate of return)?
Answer: The discount rate that forces the present value of the cash
inflows to equal the price of the bond. (Or forcing the NPV to equal
zero).
◉ Know how to solve for the IRR
Know the decisions rules for using IRR to accept or reject a project.
