FIN3400 FINAL REVIEW PREP QUESTIONS AND
ANSWERS | WINTER 2026 | RATED 100% CORRECT.
When calculating the weighted average cost of capital, weights are based on:
Answer - market values
When firms use multiple sources of capital, they need to calculate the
appropriate discount rate for valuing their firm's cash flows as: Answer - a
weighted average of the capital components costs
Why do we use market-value weights instead of book-value weights? Answer -
because we are interested in determining what the cost of financing the firm's
assets would be given today's market situation and the component costs the
firm currently faces, not what the historical prices would have been
An estimated WACC computed using some sort of proxy for the average equity
risk of the projects in a particular business unit is known as the: Answer -
divisional wacc
Flotation costs are: Answer - commissions to the underwriting firm that floats
the issue
Concerning incremental project cash flow, which of these is a cost one would
never count as an expense of the project? Answer - financing costs
,All of the following are incremental cash flows attributable to the project
EXCEPT: Answer - financing costs
AB Mining Company just commissioned a firm to identify if an unused portion
of their mine contains any silver or gold at a cost of $125,000. This is an
example of a(n): Answer - sunk cost
Which of these is the concept that a unit's sales will follow an approximate
bell-shaped curve versus a steady sales life? Answer - product life cycle
An asset's cost plus the amounts you paid for items such as sales tax, freight
charges, and installation and testing fees is referred to as the:
___________________. Answer - depreciable basis
Which of the following is defined as the cost or forgone opportunity of using an
asset already in use by the firm, or a person already employed by the firm, in a
new project? Answer - opportunity cost
A production strategy that attempts to improve a firm's return on investment
by reducing in-process inventory and associated carrying costs as much as
possible is which of the following? Answer - just in time
Which of these is a short-term loan secured by a company's assets? Answer -
asset based loan
Which of these is the requirement of the firm to keep a certain percentage of
the borrowed money deposited in the firm's bank accounts, whereby the bank
agrees to lend money to the firm? Answer - compensating balance
, For most businesses, particularly smaller ones, the most common way to cover
a short-term financing need is to apply at a bank for which of the following?
Answer - commercial loan
Paper Exchange has 80 million shares of common stock outstanding, 60 million
shares of preferred stock outstanding, and 50 thousand bonds. If the common
shares are selling for $20 per share, the preferred shares are selling for $10 per
share, and the bonds are selling for 105 percent of par, what would be the
weight used for preferred stock in the computation of Paper's WACC? Answer -
26.64%
(60,000,000 × 10)/(80,000,000 × 20 + 60,000,000 × 10 + 50,000 × 1.05 × 1,000)
= 600m/2252.5m = 26.64 percent
FarCry Industries, a maker of telecommunications equipment, has 26 million
shares of common stock outstanding, 1 million shares of preferred stock
outstanding, and 10 thousand bonds. If the common shares sell for $12 per
share, the preferred shares sell for $114.50 per share, and the bonds sell for
98percent of par ($1,000), what weight should you use for preferred stock in
the computation of FarCry's WACC? Answer - 26.64%
114.5 × 1/[26 × 12 + 114.5 × 1 + 980 × 0.01] = 26.24 percent
Oberon Inc. has a $20 million ($1,000 face value) 10-year bond issue selling for
99 percent of par that pays an annual coupon of 7.25 percent. What would be
Oberon's before-tax component cost of debt? Answer - 7.40%
PV = -990; FV = 1000; PMT = 72.50; N = 10; I = 7.40 percent
KatyDid Clothes has a $150 million ($1,000 face value) 15-year bond issue
selling for 106 percent of par that carries a coupon rate of 8 percent, paid semi-
ANSWERS | WINTER 2026 | RATED 100% CORRECT.
When calculating the weighted average cost of capital, weights are based on:
Answer - market values
When firms use multiple sources of capital, they need to calculate the
appropriate discount rate for valuing their firm's cash flows as: Answer - a
weighted average of the capital components costs
Why do we use market-value weights instead of book-value weights? Answer -
because we are interested in determining what the cost of financing the firm's
assets would be given today's market situation and the component costs the
firm currently faces, not what the historical prices would have been
An estimated WACC computed using some sort of proxy for the average equity
risk of the projects in a particular business unit is known as the: Answer -
divisional wacc
Flotation costs are: Answer - commissions to the underwriting firm that floats
the issue
Concerning incremental project cash flow, which of these is a cost one would
never count as an expense of the project? Answer - financing costs
,All of the following are incremental cash flows attributable to the project
EXCEPT: Answer - financing costs
AB Mining Company just commissioned a firm to identify if an unused portion
of their mine contains any silver or gold at a cost of $125,000. This is an
example of a(n): Answer - sunk cost
Which of these is the concept that a unit's sales will follow an approximate
bell-shaped curve versus a steady sales life? Answer - product life cycle
An asset's cost plus the amounts you paid for items such as sales tax, freight
charges, and installation and testing fees is referred to as the:
___________________. Answer - depreciable basis
Which of the following is defined as the cost or forgone opportunity of using an
asset already in use by the firm, or a person already employed by the firm, in a
new project? Answer - opportunity cost
A production strategy that attempts to improve a firm's return on investment
by reducing in-process inventory and associated carrying costs as much as
possible is which of the following? Answer - just in time
Which of these is a short-term loan secured by a company's assets? Answer -
asset based loan
Which of these is the requirement of the firm to keep a certain percentage of
the borrowed money deposited in the firm's bank accounts, whereby the bank
agrees to lend money to the firm? Answer - compensating balance
, For most businesses, particularly smaller ones, the most common way to cover
a short-term financing need is to apply at a bank for which of the following?
Answer - commercial loan
Paper Exchange has 80 million shares of common stock outstanding, 60 million
shares of preferred stock outstanding, and 50 thousand bonds. If the common
shares are selling for $20 per share, the preferred shares are selling for $10 per
share, and the bonds are selling for 105 percent of par, what would be the
weight used for preferred stock in the computation of Paper's WACC? Answer -
26.64%
(60,000,000 × 10)/(80,000,000 × 20 + 60,000,000 × 10 + 50,000 × 1.05 × 1,000)
= 600m/2252.5m = 26.64 percent
FarCry Industries, a maker of telecommunications equipment, has 26 million
shares of common stock outstanding, 1 million shares of preferred stock
outstanding, and 10 thousand bonds. If the common shares sell for $12 per
share, the preferred shares sell for $114.50 per share, and the bonds sell for
98percent of par ($1,000), what weight should you use for preferred stock in
the computation of FarCry's WACC? Answer - 26.64%
114.5 × 1/[26 × 12 + 114.5 × 1 + 980 × 0.01] = 26.24 percent
Oberon Inc. has a $20 million ($1,000 face value) 10-year bond issue selling for
99 percent of par that pays an annual coupon of 7.25 percent. What would be
Oberon's before-tax component cost of debt? Answer - 7.40%
PV = -990; FV = 1000; PMT = 72.50; N = 10; I = 7.40 percent
KatyDid Clothes has a $150 million ($1,000 face value) 15-year bond issue
selling for 106 percent of par that carries a coupon rate of 8 percent, paid semi-
