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FINC 3610 FINAL EXAM DISMUKES EXAM (NEW UPDATED VERSION)
LATEST ACTUAL EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED
QUESTIONS AND ANSWERS) | GUARANTEED PASS A+ [2026-2027]
1. Which of the following best describes the “time value of money” principle?
A) A dollar today is worth the same as a dollar in the future.
B) A dollar today is worth more than a dollar in the future.
C) A dollar today is worth less than a dollar in the future.
D) The value of money does not change over time.
Answer: B
Rationale: Because of inflation and opportunity costs, money available today can be invested to
earn returns, making it more valuable than the same nominal amount in the future.
2. You invest $1,000 today at 5% annual interest. What is the future value in 3 years
(compounded annually)?
A) $1,150
B) $1,157.63
C) $1,215.50
D) $1,000
Answer: B
Rationale: FV = 1000 × (1.05)^3 = 1000 × 1.157625 = $1,157.63
3. Which of the following is NOT one of the three basic questions addressed by corporate
finance?
A) What long-term investments should the firm choose?
B) How should the firm finance those investments?
C) How should the firm manage its day-to-day operations (working capital)?
D) What price should the firm set for its products?
Answer: D
Rationale: Corporate finance focuses on investment, financing, and working capital — not
product pricing. Quizlet+1
2026 2027 GRADED A+
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4. Project A costs $50,000 now and is expected to return $15,000 per year for 5 years. If the
discount rate is 8%, what is the Net Present Value (NPV)? (Round to nearest $)
A) Negative NPV
B) $5,876
C) $7,432
D) $10,000
Answer: B (≈ $5,876)
Rationale: NPV = –50,000 + Σₜ₌1⁵ (15,000 / (1.08)^t). The sum of PVs of inflows minus cost
yields a positive NPV, making the project acceptable under NPV rule.
5. Which capital budgeting method identifies the discount rate that makes the NPV of a project
zero?
A) Payback Period
B) Accounting Rate of Return (ARR)
C) Internal Rate of Return (IRR)
D) Profitability Index (PI)
Answer: C
Rationale: IRR is defined as the discount rate that equates the present value of cash inflows to
the initial investment, making NPV = 0. 365 Financial Analyst+1
6. If a firm uses the payback period method, a shorter payback period is generally considered:
A) More risky
B) Less desirable
C) More desirable
D) Irrelevant
Answer: C
Rationale: Shorter payback means the firm recoups its investment faster, reducing risk and
improving liquidity.
7. The formula for Profitability Index (PI) is:
A) (PV of future cash flows) ÷ Initial investment
B) (Initial investment) ÷ PV of future cash flows
C) NPV ÷ Initial investment
D) Future value ÷ Present value
Answer: A
Rationale: PI = PV of future cash flows / Initial investment; PI > 1 suggests project adds value.
365 Financial Analyst+1
2026 2027 GRADED A+
,3|Page
8. A company’s balance sheet shows current assets = $200,000 and current liabilities = $120,000.
What is its Net Working Capital (NWC)?
A) $80,000
B) $320,000
C) –$80,000
D) $120,000
Answer: A
Rationale: NWC = Current Assets – Current Liabilities = 200,000 – 120,000 = $80,000.
Working capital reflects short-term liquidity. Quizlet+1
9. Which business structure involves one owner, unlimited liability, and income taxed as personal
income?
A) Corporation
B) Partnership
C) Sole proprietorship
D) Limited liability company (LLC)
Answer: C
Rationale: Sole proprietorship offers simplicity and direct ownership but entails unlimited
personal liability and pass-through taxation. Docsity+1
10. Which of the following statements about a corporation is TRUE?
A) Owners have unlimited liability.
B) Ownership and control are usually separated.
C) It is taxed only once.
D) It is limited to a small number of owners.
Answer: B
Rationale: In corporations, shareholders (owners) typically do not manage daily operations —
management is separate, distinguishing ownership from control. Docsity+1
11. A firm evaluates two mutually exclusive projects. Project A has NPV = $8,000; Project B has
NPV = $12,000. Which should the firm choose (assuming no capital constraints)?
A) Project A
B) Project B
C) Both
D) Neither
2026 2027 GRADED A+
, 4|Page
Answer: B
Rationale: With mutually exclusive projects and positive NPVs, the firm should choose the one
with the higher NPV — Project B — because it adds greater value.
12. Why is NPV generally preferred over the payback period method in evaluating projects?
A) NPV ignores the time value of money.
B) Payback considers all cash flows equally.
C) NPV accounts for all cash flows and discounting; payback ignores time value and cash flows
after payback.
D) Payback gives a better measure of profitability.
Answer: C
Rationale: NPV discounts all cash flows over the project’s life, providing a full value-add
measure, whereas payback ignores later cash flows and time value. Wikipedia+1
13. If a company’s cost of capital increases, what happens to the NPV of a given project (all else
equal)?
A) NPV increases
B) NPV stays the same
C) NPV decreases
D) NPV becomes negative always
Answer: C
Rationale: Higher discount rate reduces present value of future cash flows, which lowers NPV.
14. Which of the following is a short-term financing concern?
A) Capital budgeting
B) Capital structure decisions
C) Working capital management
D) Mergers & acquisitions
Answer: C
Rationale: Working capital management deals with the firm’s short-term assets & liabilities —
cash flow, receivables, inventory, payables. Quizlet+1
2026 2027 GRADED A+
FINC 3610 FINAL EXAM DISMUKES EXAM (NEW UPDATED VERSION)
LATEST ACTUAL EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED
QUESTIONS AND ANSWERS) | GUARANTEED PASS A+ [2026-2027]
1. Which of the following best describes the “time value of money” principle?
A) A dollar today is worth the same as a dollar in the future.
B) A dollar today is worth more than a dollar in the future.
C) A dollar today is worth less than a dollar in the future.
D) The value of money does not change over time.
Answer: B
Rationale: Because of inflation and opportunity costs, money available today can be invested to
earn returns, making it more valuable than the same nominal amount in the future.
2. You invest $1,000 today at 5% annual interest. What is the future value in 3 years
(compounded annually)?
A) $1,150
B) $1,157.63
C) $1,215.50
D) $1,000
Answer: B
Rationale: FV = 1000 × (1.05)^3 = 1000 × 1.157625 = $1,157.63
3. Which of the following is NOT one of the three basic questions addressed by corporate
finance?
A) What long-term investments should the firm choose?
B) How should the firm finance those investments?
C) How should the firm manage its day-to-day operations (working capital)?
D) What price should the firm set for its products?
Answer: D
Rationale: Corporate finance focuses on investment, financing, and working capital — not
product pricing. Quizlet+1
2026 2027 GRADED A+
,2|Page
4. Project A costs $50,000 now and is expected to return $15,000 per year for 5 years. If the
discount rate is 8%, what is the Net Present Value (NPV)? (Round to nearest $)
A) Negative NPV
B) $5,876
C) $7,432
D) $10,000
Answer: B (≈ $5,876)
Rationale: NPV = –50,000 + Σₜ₌1⁵ (15,000 / (1.08)^t). The sum of PVs of inflows minus cost
yields a positive NPV, making the project acceptable under NPV rule.
5. Which capital budgeting method identifies the discount rate that makes the NPV of a project
zero?
A) Payback Period
B) Accounting Rate of Return (ARR)
C) Internal Rate of Return (IRR)
D) Profitability Index (PI)
Answer: C
Rationale: IRR is defined as the discount rate that equates the present value of cash inflows to
the initial investment, making NPV = 0. 365 Financial Analyst+1
6. If a firm uses the payback period method, a shorter payback period is generally considered:
A) More risky
B) Less desirable
C) More desirable
D) Irrelevant
Answer: C
Rationale: Shorter payback means the firm recoups its investment faster, reducing risk and
improving liquidity.
7. The formula for Profitability Index (PI) is:
A) (PV of future cash flows) ÷ Initial investment
B) (Initial investment) ÷ PV of future cash flows
C) NPV ÷ Initial investment
D) Future value ÷ Present value
Answer: A
Rationale: PI = PV of future cash flows / Initial investment; PI > 1 suggests project adds value.
365 Financial Analyst+1
2026 2027 GRADED A+
,3|Page
8. A company’s balance sheet shows current assets = $200,000 and current liabilities = $120,000.
What is its Net Working Capital (NWC)?
A) $80,000
B) $320,000
C) –$80,000
D) $120,000
Answer: A
Rationale: NWC = Current Assets – Current Liabilities = 200,000 – 120,000 = $80,000.
Working capital reflects short-term liquidity. Quizlet+1
9. Which business structure involves one owner, unlimited liability, and income taxed as personal
income?
A) Corporation
B) Partnership
C) Sole proprietorship
D) Limited liability company (LLC)
Answer: C
Rationale: Sole proprietorship offers simplicity and direct ownership but entails unlimited
personal liability and pass-through taxation. Docsity+1
10. Which of the following statements about a corporation is TRUE?
A) Owners have unlimited liability.
B) Ownership and control are usually separated.
C) It is taxed only once.
D) It is limited to a small number of owners.
Answer: B
Rationale: In corporations, shareholders (owners) typically do not manage daily operations —
management is separate, distinguishing ownership from control. Docsity+1
11. A firm evaluates two mutually exclusive projects. Project A has NPV = $8,000; Project B has
NPV = $12,000. Which should the firm choose (assuming no capital constraints)?
A) Project A
B) Project B
C) Both
D) Neither
2026 2027 GRADED A+
, 4|Page
Answer: B
Rationale: With mutually exclusive projects and positive NPVs, the firm should choose the one
with the higher NPV — Project B — because it adds greater value.
12. Why is NPV generally preferred over the payback period method in evaluating projects?
A) NPV ignores the time value of money.
B) Payback considers all cash flows equally.
C) NPV accounts for all cash flows and discounting; payback ignores time value and cash flows
after payback.
D) Payback gives a better measure of profitability.
Answer: C
Rationale: NPV discounts all cash flows over the project’s life, providing a full value-add
measure, whereas payback ignores later cash flows and time value. Wikipedia+1
13. If a company’s cost of capital increases, what happens to the NPV of a given project (all else
equal)?
A) NPV increases
B) NPV stays the same
C) NPV decreases
D) NPV becomes negative always
Answer: C
Rationale: Higher discount rate reduces present value of future cash flows, which lowers NPV.
14. Which of the following is a short-term financing concern?
A) Capital budgeting
B) Capital structure decisions
C) Working capital management
D) Mergers & acquisitions
Answer: C
Rationale: Working capital management deals with the firm’s short-term assets & liabilities —
cash flow, receivables, inventory, payables. Quizlet+1
2026 2027 GRADED A+
