BFIN Test 2 Study Guide | Business Finance Practice Questions &
Review Notes 2026
What changes most affect FCF? - correct answer ✔✔Changes in NOPAT, CAPEX, sales growth,
and WACC
financial planning definition - correct answer ✔✔process firms use to estimate future financial
outcomes
operating plan - correct answer ✔✔provides detailed implementation guidance for a firm's
operations
dividend policy - correct answer ✔✔guides size and method of cash distributions
capital structure - correct answer ✔✔determines debt-equity mix
what do managers use projected financial statements for? - correct answer ✔✔check if
performance aligns with targets, analyze impact of operating changes through what-if scenarios,
forecast FCFs and capital needs
how to forecast projected financial statements - correct answer ✔✔1. forecast operating items
(sales, costs, inventory) and FCFs
2. apply a preliminary financial plan to project financial items
3. identify any financing surplus or deficit and eliminate
how to eliminate financing deficit? - correct answer ✔✔Draw on a line of credit
how to eliminate surplus? - correct answer ✔✔pay special dividend, repurchase stock
, project cost of capital - correct answer ✔✔required rate of return to take on new project
factors that affect WACC - correct answer ✔✔market conditions (interest & tax rates), capital
structure, dividend policy
capital budgeting - correct answer ✔✔whole process of analyzing projects and deciding wich to
include in capital budget
types of major capital expenditure projects - correct answer ✔✔new project development,
expansion of existing, replacement needed tp continue current ops
NPV - correct answer ✔✔sum of all PVs of all CIFs and COFs of project
Internal Rate of Return - correct answer ✔✔forces PV of FCIFs to equal initial costs (breakeven
point)
independent - correct answer ✔✔CFs of one project unaffected by thr other
mutually exclusive - correct answer ✔✔CFs of one can be adversly impacted by the other. one
must be rejected
issues with IRR - correct answer ✔✔-multiple IRRs
- wrong reinvestment rate assumption- CFs reinvested at IRR
MIRR - correct answer ✔✔shows expected return a project earns assuming you reinvest CIFs at
WACC and take COFs as project's cost
Review Notes 2026
What changes most affect FCF? - correct answer ✔✔Changes in NOPAT, CAPEX, sales growth,
and WACC
financial planning definition - correct answer ✔✔process firms use to estimate future financial
outcomes
operating plan - correct answer ✔✔provides detailed implementation guidance for a firm's
operations
dividend policy - correct answer ✔✔guides size and method of cash distributions
capital structure - correct answer ✔✔determines debt-equity mix
what do managers use projected financial statements for? - correct answer ✔✔check if
performance aligns with targets, analyze impact of operating changes through what-if scenarios,
forecast FCFs and capital needs
how to forecast projected financial statements - correct answer ✔✔1. forecast operating items
(sales, costs, inventory) and FCFs
2. apply a preliminary financial plan to project financial items
3. identify any financing surplus or deficit and eliminate
how to eliminate financing deficit? - correct answer ✔✔Draw on a line of credit
how to eliminate surplus? - correct answer ✔✔pay special dividend, repurchase stock
, project cost of capital - correct answer ✔✔required rate of return to take on new project
factors that affect WACC - correct answer ✔✔market conditions (interest & tax rates), capital
structure, dividend policy
capital budgeting - correct answer ✔✔whole process of analyzing projects and deciding wich to
include in capital budget
types of major capital expenditure projects - correct answer ✔✔new project development,
expansion of existing, replacement needed tp continue current ops
NPV - correct answer ✔✔sum of all PVs of all CIFs and COFs of project
Internal Rate of Return - correct answer ✔✔forces PV of FCIFs to equal initial costs (breakeven
point)
independent - correct answer ✔✔CFs of one project unaffected by thr other
mutually exclusive - correct answer ✔✔CFs of one can be adversly impacted by the other. one
must be rejected
issues with IRR - correct answer ✔✔-multiple IRRs
- wrong reinvestment rate assumption- CFs reinvested at IRR
MIRR - correct answer ✔✔shows expected return a project earns assuming you reinvest CIFs at
WACC and take COFs as project's cost
