BFIN 300 Final Exam Questions with 100%
Correct Answers
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to
repair it. Your total in-cost is $50,000. When the work is done, you place the home back
on the market and find that it's worth $60,000. What is your NPV?
a) Zero
b) $10,000
c) $25,000
d) $50,000
e) $60,000
b) $10,000
NPV = PV of Cash Flows - Initial InvestmentNPV = $60,000 - $50,000 NPV = $10,000
What is the difference between an investment's market value and cost?
a) Internal Rate of Return (IRR)
b) Net Present Value (NPV)
c) Capital budgeting process
d) Discounted Cash Flow (DCF) e) All of the above
b) Net Present Value (NPV)
As a financial manager, what will you do with an investment if its Net Present Value
(NPV) is negative?
a) Estimate the cash flows of the business
b) Reject the investment
,c) Accept the investment
d) Be agnostic with the investment
e) None of the above
b) Reject the investment
Which investment technique yields the same result as Net Present Value (NPV)?
a) Payback Rule
b) Discounted Payback Period
c) Internal Rate of Return
d) Average Accounting Return
e) Profitability Index
c) Internal Rate of Return
Which statement is true regarding the Internal Rate of Return (IRR)?
a) It is the most important alternative to Net Present Value
b) The IRR is a single rate of return which summarizes the merits of the project
c) It is the discount rate which makes the Net Present Value of an investment equate to
zero d) An investment is acceptable if its IRR exceeds the required return
e) All of the above
e) All of the above
1) What is the best definition of an opportunity cost?
a) Sunk cost
b) Erosion
c) The most valuable investment alternative given up if a particular investment is
undertaken
,d) Net working capital
e) Cost to prepare pro forma financial statements
c. The most valuable investment alternative given up if a particular investment is undertaken
What are some common pitfalls when looking at incremental cash flows?
a) Not including sunk costs
b) Including opportunity costs
c) Including financing costs
d) Not including side effects of doing the deal e) All of the above
b) Including opportunity costs
What is considered a relevant cash flow for a project?
a) A change in the Firm's overall future cash flows that comes about as a direct
consequence of a decision to take on that project
b) A cash flow for project evaluation consists of any and all changes in the firm's future
cash flows with a project that are a direct consequence of taking on the project
c) Capital gains from disposal
d) Sunk cost
e) Cannibalization of other projects
b) A cash flow for project evaluation consists of any and all changes in the firm's future cash
flows with a project that are a direct consequence of taking on the project
An example of erosion when taking on a new project would be?
a) Trustco Bank opening a branch in Guilderland next to a Bank of America branch
b) Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong
Disney and Tokyo Disney revenues
c)Tides at a beach moving sand to another location
, d) Home Depot purchasing a chain of hardware stores in a locale that it doesn't exist
e) All of the above
b) Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong
Disney and Tokyo Disney revenues
What are pro forma financial statements?
a) Financial statement projecting future years operations
b) Working capital summaries
c) Changes to working capital
d) The three components of a cash flow statement
e) All of the above
a) Financial statement projecting future years operations
Which type of company analysis only allows for one variable to change?
a) Simulation Analysis
b) Break-even Analysis
c) Sensitivity Analysis
d) Scenario analysis
e) Cash flow analysis
c) Sensitivity Analysis
Which type of company analysis considers the inter-relationships between different
cash flow components?
a) Simulation Analysis
b) Break-even Analysis
c) Sensitivity Analysis
Correct Answers
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to
repair it. Your total in-cost is $50,000. When the work is done, you place the home back
on the market and find that it's worth $60,000. What is your NPV?
a) Zero
b) $10,000
c) $25,000
d) $50,000
e) $60,000
b) $10,000
NPV = PV of Cash Flows - Initial InvestmentNPV = $60,000 - $50,000 NPV = $10,000
What is the difference between an investment's market value and cost?
a) Internal Rate of Return (IRR)
b) Net Present Value (NPV)
c) Capital budgeting process
d) Discounted Cash Flow (DCF) e) All of the above
b) Net Present Value (NPV)
As a financial manager, what will you do with an investment if its Net Present Value
(NPV) is negative?
a) Estimate the cash flows of the business
b) Reject the investment
,c) Accept the investment
d) Be agnostic with the investment
e) None of the above
b) Reject the investment
Which investment technique yields the same result as Net Present Value (NPV)?
a) Payback Rule
b) Discounted Payback Period
c) Internal Rate of Return
d) Average Accounting Return
e) Profitability Index
c) Internal Rate of Return
Which statement is true regarding the Internal Rate of Return (IRR)?
a) It is the most important alternative to Net Present Value
b) The IRR is a single rate of return which summarizes the merits of the project
c) It is the discount rate which makes the Net Present Value of an investment equate to
zero d) An investment is acceptable if its IRR exceeds the required return
e) All of the above
e) All of the above
1) What is the best definition of an opportunity cost?
a) Sunk cost
b) Erosion
c) The most valuable investment alternative given up if a particular investment is
undertaken
,d) Net working capital
e) Cost to prepare pro forma financial statements
c. The most valuable investment alternative given up if a particular investment is undertaken
What are some common pitfalls when looking at incremental cash flows?
a) Not including sunk costs
b) Including opportunity costs
c) Including financing costs
d) Not including side effects of doing the deal e) All of the above
b) Including opportunity costs
What is considered a relevant cash flow for a project?
a) A change in the Firm's overall future cash flows that comes about as a direct
consequence of a decision to take on that project
b) A cash flow for project evaluation consists of any and all changes in the firm's future
cash flows with a project that are a direct consequence of taking on the project
c) Capital gains from disposal
d) Sunk cost
e) Cannibalization of other projects
b) A cash flow for project evaluation consists of any and all changes in the firm's future cash
flows with a project that are a direct consequence of taking on the project
An example of erosion when taking on a new project would be?
a) Trustco Bank opening a branch in Guilderland next to a Bank of America branch
b) Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong
Disney and Tokyo Disney revenues
c)Tides at a beach moving sand to another location
, d) Home Depot purchasing a chain of hardware stores in a locale that it doesn't exist
e) All of the above
b) Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong
Disney and Tokyo Disney revenues
What are pro forma financial statements?
a) Financial statement projecting future years operations
b) Working capital summaries
c) Changes to working capital
d) The three components of a cash flow statement
e) All of the above
a) Financial statement projecting future years operations
Which type of company analysis only allows for one variable to change?
a) Simulation Analysis
b) Break-even Analysis
c) Sensitivity Analysis
d) Scenario analysis
e) Cash flow analysis
c) Sensitivity Analysis
Which type of company analysis considers the inter-relationships between different
cash flow components?
a) Simulation Analysis
b) Break-even Analysis
c) Sensitivity Analysis
