FINANCE . 301 . EXAM . 3 . WITH . CORRECT . . AND . ANSWERS . GRADED . A+ . 2025/2026

FINANCE 301 EXAM 3 WITH CORRECT QUESTIONS
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. AND ANSWERS GRADED A+ 2025/2026
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Discounted .Cash .Flow .(DFC) .Valuation .- .CORRECT .ANSWER--Value .equals .the .sum .of
.expected .cash .flows .discounted .for .the .time .and .risk


.-Value .of .financial .investment- .the .present .value .of .the .investment's .expected .future

.cash .flows


.-Once .the .value .of .the .asset .is .determined, .you .can .compare .the .value .of .the .asset .to

.the .asset's .price .to .determine .whether .the .asset .is .overvalued, .undervalued, .or .fairly

.valued




The .three .steps .to .DFC .valuation .- .CORRECT .ANSWER-1. .Estimate .the .expected .future
.cash .flows .of .the .investment


2. .Determine .the .appropriate .interest .rate .to .use .to .discount .the .expected .cash .flows .of
.the .investment


3. .Find .the .present .value .of .each .of .the .expected .future .cash .flows .and .total .them .to
.find .the .value .of .the .investment




Investment .Classifications .- .CORRECT .ANSWER-Bonds- .the .future .cash .flows .are .the
.payments .of .periodic .interest .and .the .repayment .of .principal .at .maturity


Mortgage- .the .future .cash .flows .are .the .monthly .payments .that .consist .of .both .payment
.of .interest .and .principal


Stock- .the .future .cash .flows .are .payments .of .dividends .by .the .stock, .if .there .are .any, .and
.capital .gains .or .losses .related .to .the .movement .in .the .price .of .the .stock

, Loan .payments .- .CORRECT .ANSWER--when .you .are .making .a .payment .on .a .loan, .some .of
.the .money .from .the .payment .goes .to .interest .and .the .rest .goes .to .pay .your .down

.principal




Amortization .table .- .CORRECT .ANSWER--a .tool .used .to .break .down .how .much .of .each
.loan .payment .goes .to .interest .and .how .much .goes .to .principal


-The .amount .of .your .loan .payment .will .be .the .same .every .year; .however, .the .percent .of
.the .payment .that .goes .to .interest .and .the .percent .that .goes .to .principal .will .change

.every .year


-In .the .early .years .of .a .loan, .most .of .your .payment .will .go .to .pay .interest, .and .only .a
.little .bit .will .go .to .pay .your .down .principal


-In .the .later .years .of .the .loan, .most .of .your .payment .will .go .to .pay .down .your .principal,
.and .only .a .little .bit .will .go .to .interest




Annual .Interest .Expense .=

Principal .Reduction .= .

Total .Interest .Expense .= .- .CORRECT .ANSWER-Principal .Balance .x .Interest .Rate

Annual .Payment .- .Annual .Interest .Expense

(Annual .Payment)(Number .of .Years) .- .Amount .of .Loan



Capital .budgeting .- .CORRECT .ANSWER--Planning .and .managing .a .firm's .long-term
.investments .(assets)


-Financial .managers .want .to .invest .in .opportunities .that .will .be .worth .more .than .they
.cost .to .build .or .purchase


-Financial .managers .maximize .the .value .of .the .firm .by .investing .in .projects .that .have .a
.present .value .of .cash .flows .that .is .greater .than .the .cost .of .the .project




Factors .financial .managers .need .to .take .into .account .when .making .capital .budgeting
.decisions: .- .CORRECT .ANSWER-1. .Return- .how .much .they .will .earn .on .an .investment


2. .Timing- .when .will .the .investment's .cash .flows .take .place

3. .Risk- .how .likely .they .are .to .receive .the .investment's .expected .cash .flows