FNAN 522 FINAL EXAM QUESTIONS
WITH VERIFIED ANSWERS. A+ GRADE
2025/2026.
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year
after the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the
initial investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of
the year. - ANS $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn$25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year. - ANS 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? - ANS To compare two projects that have an equal initial investment
and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true? - ANS The internal rate of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, project is 15.3%. You are still negotiating the purchase price of the equipment. What is the
most you can pay for the equipment and still have a positive NPV? - ANS $12.6 million
Which of the following could be a sunk cost? - ANS -A feasibility study that attempted to
determine the economic viability of a project.
-Labor hours spent on planning project.
- Equipment purchased to pursue a project.
Which of the following is an example of an opportunity cost? - ANS - If you watch a game
instead of going for a run, the cost is poorer personal health.
- If you buy a candy bar instead of a soda, the cost is thirst.
- If invest in one of two projects, the cost is the lost revenue from the other project.
Which of the following is the best reason to use the payback method to evaluate investments? -
ANS The payback method is easy to use and understand for most people, regardless of
training.
You are analyzing two different investments and will present your findings to company
executives. Both projects have cash flows that alternate between positive and negative. Which
budgeting method should you use to evaluate the projects? - ANS Modified Internal Rate of
Return and Net Present Value.
Under the present value concept, a lottery winner would rather receive: - ANS It is not clear
which of these is preferable. The best answer depends on the interest rate that the lottery
winner faces.
The marginal tax rate is: - ANS The tax rate incurred on each additional dollar of income.
A company sells 150,000 units at $60 a unit with a variable cost of $30 a unit. It has $1 million in
fixed costs and $600,000 in interest costs. What is the company's operating leverage? -
ANS 1.29
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
WITH VERIFIED ANSWERS. A+ GRADE
2025/2026.
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year
after the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the
initial investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of
the year. - ANS $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn$25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year. - ANS 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? - ANS To compare two projects that have an equal initial investment
and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true? - ANS The internal rate of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, project is 15.3%. You are still negotiating the purchase price of the equipment. What is the
most you can pay for the equipment and still have a positive NPV? - ANS $12.6 million
Which of the following could be a sunk cost? - ANS -A feasibility study that attempted to
determine the economic viability of a project.
-Labor hours spent on planning project.
- Equipment purchased to pursue a project.
Which of the following is an example of an opportunity cost? - ANS - If you watch a game
instead of going for a run, the cost is poorer personal health.
- If you buy a candy bar instead of a soda, the cost is thirst.
- If invest in one of two projects, the cost is the lost revenue from the other project.
Which of the following is the best reason to use the payback method to evaluate investments? -
ANS The payback method is easy to use and understand for most people, regardless of
training.
You are analyzing two different investments and will present your findings to company
executives. Both projects have cash flows that alternate between positive and negative. Which
budgeting method should you use to evaluate the projects? - ANS Modified Internal Rate of
Return and Net Present Value.
Under the present value concept, a lottery winner would rather receive: - ANS It is not clear
which of these is preferable. The best answer depends on the interest rate that the lottery
winner faces.
The marginal tax rate is: - ANS The tax rate incurred on each additional dollar of income.
A company sells 150,000 units at $60 a unit with a variable cost of $30 a unit. It has $1 million in
fixed costs and $600,000 in interest costs. What is the company's operating leverage? -
ANS 1.29
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
