FIN 300 W07 Final Exam Part 3 | Pedro’s Pan Case Study | 60 Worked Questions, Answers and Solutions | 2026 Updated | 100% Correct - BYU.

FIN 300 W07 Final Exam Part 3 | Pedro’s
Pan Case Study | 60 Worked Questions,
Answers and Solutions | 2026 Updated
| 100% Correct - BYU.
1. What is the primary purpose of the Pedro's Pan case study in FIN 300?
• A) To teach personal income tax filing
• B) To apply capital budgeting and valuation techniques to a real-world
business scenario
• C) To analyze macroeconomic policy
• D) To study bond duration only

Correct Answer: B
Rationale: The Pedro's Pan case is designed to integrate capital budgeting,
cash flow forecasting, NPV, IRR, and risk analysis in a practical small-business
context.


2. Pedro's Pan is best described as which type of business?
• A) A large multinational conglomerate
• B) A small baking/culinary business evaluating expansion
• C) A government agency
• D) A hedge fund

Correct Answer: B
Rationale: The case centers on a small business (Pedro's Pan) assessing
whether to expand operations, making it a capital budgeting decision.

,3. In capital budgeting, the most important cash flows to consider are:
• A) Sunk costs
• B) Incremental after-tax cash flows
• C) Financing costs
• D) Accounting net income

Correct Answer: B
Rationale: Only incremental after-tax cash flows are relevant because they
represent the true change in firm value from accepting a project.


4. Which of the following is a sunk cost in Pedro's Pan?
• A) Future rent on a new oven
• B) Market research already paid for
• C) Additional labor costs
• D) New packaging costs

Correct Answer: B
Rationale: Sunk costs are already incurred and cannot be recovered; they
should be ignored in incremental analysis.


5. Why are financing costs (interest) excluded from project cash flows?
• A) They are illegal to include
• B) They are captured in the discount rate (WACC)
• C) They are always zero
• D) They are sunk costs

, Correct Answer: B
Rationale: Financing costs are embedded in the required rate of return used
to discount cash flows, so including them again would double-count.


6. Net Present Value (NPV) is calculated as:
• A) PV of inflows minus PV of outflows
• B) PV of outflows minus PV of inflows
• C) Total revenues minus total costs
• D) IRR minus WACC

Correct Answer: A
Rationale: NPV = Σ [CFt / (1+r)^t] − Initial Investment. A positive NPV means
value creation.


7. If Pedro's Pan project has NPV > 0, the project should be:
• A) Rejected
• B) Accepted
• C) Delayed indefinitely
• D) Sold immediately

Correct Answer: B
Rationale: A positive NPV indicates the project earns more than the required
return, increasing shareholder value.


8. The Internal Rate of Return (IRR) is:
• A) The discount rate that makes NPV = 0

, • B) The discount rate that makes NPV maximum
• C) Always equal to WACC
• D) The accounting rate of return

Correct Answer: A
Rationale: IRR is the rate at which the present value of inflows equals the
initial outlay, i.e., NPV = 0.


9. The decision rule for IRR is:
• A) Accept if IRR < WACC
• B) Accept if IRR > WACC
• C) Accept if IRR = 0
• D) Reject if IRR > WACC

Correct Answer: B
Rationale: If the project's return exceeds the cost of capital, it adds value.


10. A weakness of IRR compared to NPV is:
• A) It ignores time value of money
• B) It can give multiple solutions with non-conventional cash flows
• C) It cannot be computed in Excel
• D) It ignores all cash flows

Correct Answer: B
Rationale: Non-conventional cash flows (multiple sign changes) can produce
multiple IRRs, making NPV the superior metric.