1 | Page
FIN 370 – Corporate Finance | A+ Graded Exam Questions,
Solutions, Study Guide, and Complete Preparation Material
for 2026/2027 Exams
1. In pro forma analysis, what determines whether or not an account on the
balance sheet or income statement is relevant to a project? - SOLUTION=The
projected causes an account to change, then it is revelant.
2. How can you determine if a cash flow is incremental to a project? -
SOLUTION=The cash flow will disappear when the project ceases
The cash flow changes only when a new project is implemented
The cash flow occurs only if a new project is implemented
3. What is an opportunity cost? - SOLUTION=The value of the next best
alternative use of a resource owned or employed by a firm.
4. Which one of these represents an opportunity cost? -
SOLUTION=Assigning a current employee to a new project
5. Which of these illustrates a complementary effect? Select all that apply. -
SOLUTION=A new product increases traffic flow thereby increasing the revenue
generated by a firm's existing products.
A new product increases the sales of the firm's existing products.
6. What types of cost are included in an asset's depreciable basis? Select all
that apply? - SOLUTION=Sales tax and freight charges
Purchase price of the asset
,2 | Page
Installation and testing costs
7. Which one of these computes the amount of annual depreciation using the
straight-line method? Ignore the half-year convention. - SOLUTION=(Depreciable
basis - Ending book value) / Life of asset
8. A firm purchased a new machine costing $28,000 including sales tax. It also
paid $2000 for delivery and installation. The machine has a life of 6 years and an
expected ending book value of $5000. How the depreciation is computed using the
straight-line method? Ignore the half year convention. - SOLUTION=($28000 +
$2000 - $5000) / 6
9. Which one of these is a correct formula for OCF, assuming there is no
interest expense? - SOLUTION=Net income + depreciation
10. Manor's purchases some equipment in preparation for a new project. Which
of these are time zero cash flows for that project? Select all that apply -
SOLUTION=Purchase price of the equipment
Installation and initial testing costs
Shipping costs to have the equipment delivered
11. What types of activities related to a project's fixed assets can create a cash
flow for the final year of a project? Select all that apply. - SOLUTION=Selling the
project's equipment
Scrapping equipment that has a positive book value but no market value
Trading in the projects' equipment on new equipment for other projects.
, 3 | Page
12. How is the gain or loss on a sale of equipment determined? -
SOLUTION=Gain (loss) = Market Value - Book Value
13. A project has a 3-year life and annual sales projections of $120,000,
$160,000 and $190,000 for years 1 to 3, respectively. The project requires net
working capital (NWC) equal to 5 percent of the next year's sales. How is this
requirement handled in project analysis? Select all that apply. - SOLUTION=A
cash flow of [0.05 x ($160,000 - $120,000)] is recorded in year 1
A cash outflow of (0.05 x $120,000) is recorded at time zero
A cash flow of (0.05 x $190,000) occurs in year 3
14. How is net working capital defined? - SOLUTION=Current assets - Current
liabilities
15. A project has a 3-year life and requires equipment costing $34,000. The OCF is
estimated at $16,000 annually. NWC of $3500 is required over the project's
life.
What cash flows occur at time zero? Select all that apply. - SOLUTION=-$34,000
-$3,500
16. What is pro forma analysis? - SOLUTION=Estimation of future project cash
flows using only the relevant parts of the financial statement.
FIN 370 – Corporate Finance | A+ Graded Exam Questions,
Solutions, Study Guide, and Complete Preparation Material
for 2026/2027 Exams
1. In pro forma analysis, what determines whether or not an account on the
balance sheet or income statement is relevant to a project? - SOLUTION=The
projected causes an account to change, then it is revelant.
2. How can you determine if a cash flow is incremental to a project? -
SOLUTION=The cash flow will disappear when the project ceases
The cash flow changes only when a new project is implemented
The cash flow occurs only if a new project is implemented
3. What is an opportunity cost? - SOLUTION=The value of the next best
alternative use of a resource owned or employed by a firm.
4. Which one of these represents an opportunity cost? -
SOLUTION=Assigning a current employee to a new project
5. Which of these illustrates a complementary effect? Select all that apply. -
SOLUTION=A new product increases traffic flow thereby increasing the revenue
generated by a firm's existing products.
A new product increases the sales of the firm's existing products.
6. What types of cost are included in an asset's depreciable basis? Select all
that apply? - SOLUTION=Sales tax and freight charges
Purchase price of the asset
,2 | Page
Installation and testing costs
7. Which one of these computes the amount of annual depreciation using the
straight-line method? Ignore the half-year convention. - SOLUTION=(Depreciable
basis - Ending book value) / Life of asset
8. A firm purchased a new machine costing $28,000 including sales tax. It also
paid $2000 for delivery and installation. The machine has a life of 6 years and an
expected ending book value of $5000. How the depreciation is computed using the
straight-line method? Ignore the half year convention. - SOLUTION=($28000 +
$2000 - $5000) / 6
9. Which one of these is a correct formula for OCF, assuming there is no
interest expense? - SOLUTION=Net income + depreciation
10. Manor's purchases some equipment in preparation for a new project. Which
of these are time zero cash flows for that project? Select all that apply -
SOLUTION=Purchase price of the equipment
Installation and initial testing costs
Shipping costs to have the equipment delivered
11. What types of activities related to a project's fixed assets can create a cash
flow for the final year of a project? Select all that apply. - SOLUTION=Selling the
project's equipment
Scrapping equipment that has a positive book value but no market value
Trading in the projects' equipment on new equipment for other projects.
, 3 | Page
12. How is the gain or loss on a sale of equipment determined? -
SOLUTION=Gain (loss) = Market Value - Book Value
13. A project has a 3-year life and annual sales projections of $120,000,
$160,000 and $190,000 for years 1 to 3, respectively. The project requires net
working capital (NWC) equal to 5 percent of the next year's sales. How is this
requirement handled in project analysis? Select all that apply. - SOLUTION=A
cash flow of [0.05 x ($160,000 - $120,000)] is recorded in year 1
A cash outflow of (0.05 x $120,000) is recorded at time zero
A cash flow of (0.05 x $190,000) occurs in year 3
14. How is net working capital defined? - SOLUTION=Current assets - Current
liabilities
15. A project has a 3-year life and requires equipment costing $34,000. The OCF is
estimated at $16,000 annually. NWC of $3500 is required over the project's
life.
What cash flows occur at time zero? Select all that apply. - SOLUTION=-$34,000
-$3,500
16. What is pro forma analysis? - SOLUTION=Estimation of future project cash
flows using only the relevant parts of the financial statement.
