FNAN 522 Exam Questions and All
Correct Answers 2026-2027.
A company is analyzing a variety of potential investments using different capital budgeting
methods. Which of the following represents the most profitable choice based on the
information provided? - Answer The company picks a project with profitability index of 1.25
over a project with a PI of -.25 A firm is trying to choose the most profitable project to invest in.
A firm is trying to choose the most profitable project to invest in. Which of the following should
be used as the company's discount rate? - Answer The company's reinvestment rate or
weighted average cost of capital.
(USE CALCULATOR) Calculate the discounted payback period for a project with a discount rate of
5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4:
$3000Year 5: $2000 - Answer 3.44 years
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? - Answer to compare two projects that have an equal initial investment
and lifespan.
The tax rate that applies to the last dollar of the tax base and is often applied to the change in
one's tax obligation as income rises is called _____. - Answer the marginal tax rate
When evaluating the cash flows from a project, a financial manager needs to analyze the: -
Answer costs, benefits, and opportunity costs of the project.
Which of the following describes an advantage the internal rate of return has over net present
value for capital budgeting purposes? - Answer Internal rate of return is an indicator of the
efficiency, quality or yield of an investment.
Which of the following is a correct definition of a capital budgeting method? - Answer The
internal rate of return is the discount rate that gives a net present value of zero.
Which of the following is a way cash flow factors can be used to improve a business? - Answer
-It can be used to determine problems with a business's liquidity.
-it can be used to evaluate the ""quality"" of income generated by accrual accounting.
-it can be used to .determine a project's rate of return or value
, Which of the following is an element needed to calculate an asset's depreciation? - Answer a.
The cost of the asset minus the asset's salvage value.
b. The estimated useful life of the asset.
c. A method of apportioning the cost of the asset.
A company has $2 million in machinery expenses and $3 million in rent. It costs $30 per unit in
labor costs to produce the good, which is sold for $50 per unit. What is the break even point? -
Answer 250,000 units
a company produces 100,000 units that sell for $40. The company's variable costs per unit is
$25. The company's total fixed costs are $800,000. What is the company's degree of operating
leverage? - Answer 2.14
(4,000,000-2,500,000)/(4,000,000-2,500,000-800,000)
Managers of publicly traded corporations are often compensated at least in part based on firm
profitability, and bondholders prefer to receive principal and interest payments on time.
Leverage can increase firm profitability and make more money available for interest and
principal payments, so it appears that mangers' interests and bondholders' interests are well-
aligned. Which of the following is true about conflicts between managers and bondholders? -
Answer Managers may under invest in projects if it appears that all proceeds will be absorbed
by bondholders, hurting both shareholders and bondholders.
If a company with stable earnings wanted to ensure that its managers' interests are aligned with
the company's shareholders, which of the following capital structures should it use? - Answer
A debt-heavy capital structure that maximizes returns to shareholders by magnifying ROE,
maximizing the tax shield, up to the point that these benefits are higher than anticipated
bankruptcy costs.
In a perfect market as proposed by Modigliani and Miller, which of the following statements is
true? - Answer a. As a company increases its leverage, total risk is conserved and no extra
value is created.
b. Investment decisions are not affected by financing decisions.
d. The value of a company is independent of its capital structure.
Under the best capital structure of a company, the goal of it is to maximize: - Answer a. the
market value of the company.
Correct Answers 2026-2027.
A company is analyzing a variety of potential investments using different capital budgeting
methods. Which of the following represents the most profitable choice based on the
information provided? - Answer The company picks a project with profitability index of 1.25
over a project with a PI of -.25 A firm is trying to choose the most profitable project to invest in.
A firm is trying to choose the most profitable project to invest in. Which of the following should
be used as the company's discount rate? - Answer The company's reinvestment rate or
weighted average cost of capital.
(USE CALCULATOR) Calculate the discounted payback period for a project with a discount rate of
5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4:
$3000Year 5: $2000 - Answer 3.44 years
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? - Answer to compare two projects that have an equal initial investment
and lifespan.
The tax rate that applies to the last dollar of the tax base and is often applied to the change in
one's tax obligation as income rises is called _____. - Answer the marginal tax rate
When evaluating the cash flows from a project, a financial manager needs to analyze the: -
Answer costs, benefits, and opportunity costs of the project.
Which of the following describes an advantage the internal rate of return has over net present
value for capital budgeting purposes? - Answer Internal rate of return is an indicator of the
efficiency, quality or yield of an investment.
Which of the following is a correct definition of a capital budgeting method? - Answer The
internal rate of return is the discount rate that gives a net present value of zero.
Which of the following is a way cash flow factors can be used to improve a business? - Answer
-It can be used to determine problems with a business's liquidity.
-it can be used to evaluate the ""quality"" of income generated by accrual accounting.
-it can be used to .determine a project's rate of return or value
, Which of the following is an element needed to calculate an asset's depreciation? - Answer a.
The cost of the asset minus the asset's salvage value.
b. The estimated useful life of the asset.
c. A method of apportioning the cost of the asset.
A company has $2 million in machinery expenses and $3 million in rent. It costs $30 per unit in
labor costs to produce the good, which is sold for $50 per unit. What is the break even point? -
Answer 250,000 units
a company produces 100,000 units that sell for $40. The company's variable costs per unit is
$25. The company's total fixed costs are $800,000. What is the company's degree of operating
leverage? - Answer 2.14
(4,000,000-2,500,000)/(4,000,000-2,500,000-800,000)
Managers of publicly traded corporations are often compensated at least in part based on firm
profitability, and bondholders prefer to receive principal and interest payments on time.
Leverage can increase firm profitability and make more money available for interest and
principal payments, so it appears that mangers' interests and bondholders' interests are well-
aligned. Which of the following is true about conflicts between managers and bondholders? -
Answer Managers may under invest in projects if it appears that all proceeds will be absorbed
by bondholders, hurting both shareholders and bondholders.
If a company with stable earnings wanted to ensure that its managers' interests are aligned with
the company's shareholders, which of the following capital structures should it use? - Answer
A debt-heavy capital structure that maximizes returns to shareholders by magnifying ROE,
maximizing the tax shield, up to the point that these benefits are higher than anticipated
bankruptcy costs.
In a perfect market as proposed by Modigliani and Miller, which of the following statements is
true? - Answer a. As a company increases its leverage, total risk is conserved and no extra
value is created.
b. Investment decisions are not affected by financing decisions.
d. The value of a company is independent of its capital structure.
Under the best capital structure of a company, the goal of it is to maximize: - Answer a. the
market value of the company.
