FNAN 522 Final Review – Finance Exam Notes, Problems & Study
Materials
Since the focus of capital budgeting is cash flows, changes in non-cash accounts such as
depreciation and working capital would not be relevant to the analysis. True of false. - ANS
✔✔False.
The most important advantage of the NPV approach is that it is the most theoretical correct
method. True or False. - ANS ✔✔True.
Relevant financial data for a project are best described as a) EBDT, b) incremental cash flows, c)
incremental profits, or d) accounting cash flows - ANS ✔✔b) incremental cash flows
The change in net working capital when evaluating a capital budgeting decision is... - ANS
✔✔...changes in current assets minus the change in current liabilities
Some firms use the payback period as a decision criterion or as a supplement to sophisticated
decision making techniques because.... - ANS ✔✔...it can be viewed as a measure of risk
exposure
In the context of capital budgeting, risk refers to... - ANS ✔✔...the degree of variability of the
cash inflows
One advantage of the NPV approach is that it always provides the right answer. True or false. -
ANS ✔✔True.
Mutually exclusive projects are projects whose cash flows are related to one another, the
acceptance of one does eliminate the others from further considerations. True or false. - ANS
✔✔True.
Materials
Since the focus of capital budgeting is cash flows, changes in non-cash accounts such as
depreciation and working capital would not be relevant to the analysis. True of false. - ANS
✔✔False.
The most important advantage of the NPV approach is that it is the most theoretical correct
method. True or False. - ANS ✔✔True.
Relevant financial data for a project are best described as a) EBDT, b) incremental cash flows, c)
incremental profits, or d) accounting cash flows - ANS ✔✔b) incremental cash flows
The change in net working capital when evaluating a capital budgeting decision is... - ANS
✔✔...changes in current assets minus the change in current liabilities
Some firms use the payback period as a decision criterion or as a supplement to sophisticated
decision making techniques because.... - ANS ✔✔...it can be viewed as a measure of risk
exposure
In the context of capital budgeting, risk refers to... - ANS ✔✔...the degree of variability of the
cash inflows
One advantage of the NPV approach is that it always provides the right answer. True or false. -
ANS ✔✔True.
Mutually exclusive projects are projects whose cash flows are related to one another, the
acceptance of one does eliminate the others from further considerations. True or false. - ANS
✔✔True.
