FNAN 522 Final Exam Questions and
Answers Graded A+
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.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - Correct answer-d. $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
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,internal rate of return? Assume the cash flows in years one, two, and three happen
at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Correct answer-d. 2.21%
In which of the following situations would it be appropriate to use the IRR method
to make an investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - Correct answer-a.
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?
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, a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - Correct answer-c.
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 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?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - Correct answer-d. $12.6 million
Which of the following could be a sunk cost?
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Answers Graded A+
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.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - Correct answer-d. $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
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,internal rate of return? Assume the cash flows in years one, two, and three happen
at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Correct answer-d. 2.21%
In which of the following situations would it be appropriate to use the IRR method
to make an investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - Correct answer-a.
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?
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, a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - Correct answer-c.
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 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?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - Correct answer-d. $12.6 million
Which of the following could be a sunk cost?
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