ACC415 (Advanced Financial Management) Final Assessment Review 2026 (With Solns

ACC415

Advanced Financial Management


Final Assessment Review


(With Solutions)



2026




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,1. Case: A firm’s capital structure is 40% debt, 60% equity. Cost of
debt (after tax) = 6%, cost of equity = 12%.
Q: Weighted Average Cost of Capital (WACC)?
- A. 9.6%
- B. 10.2%
- C. 8.4%
- D. 7.2%
Answer: A (0.4×6% + 0.6×12% = 9.6%).
Rationale: WACC weights costs by capital proportions.

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2. Case: A project requires $1,000,000 investment, generates
$250,000 annually for 6 years. Discount rate = 10%.
Q: NPV decision?
- A. Accept if NPV > 0
- B. Reject if IRR < WACC
- C. Accept if payback < 6 years
- D. Reject if PI < 1
Answer: A
Rationale: NPV > 0 indicates value creation.

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3. Case: Firm issues bonds at 8% coupon, market yield = 10%.
Q: Bond price relative to par?
- A. Premium
- B. Discount
- C. At par
- D. Callable
Answer: B
Rationale: Coupon < yield → discount.

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4. Case: Dividend payout ratio = 40%, ROE = 15%.
Q: Sustainable growth rate?
- A. 9%
- B. 6%
- C. 15%
- D. 12%
Answer: A (Retention = 60%; 0.6×15% = 9%).
Rationale: SGR = ROE × retention.

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5. Case: Firm considers leasing vs buying equipment. Lease
payments = $50,000 annually, purchase = $200,000.
Q: Decision depends on:
- A. Tax shield and discount rate
- B. Market price of shares
- C. Dividend policy
- D. Inventory turnover
Answer: A
Rationale: Lease vs buy analysis uses PV of cash flows and tax shield.

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6. Case: Firm’s beta = 1.5, risk-free rate = 4%, market return = 10%.
Q: Cost of equity (CAPM)?
- A. 13%
- B. 14%
- C. 15%
- D. 16%
Answer: C (4% + 1.5×(10–4) = 13%). Correction: Actually 4% + 1.5×6%
= 13%.
Answer: A (13%).
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