MBA 620 FINAL EXAM 2026 QUESTIONS AND SOLUTIONS
RATED A+
✔✔Three steps required to evaluate investments using the net present value are:
1. Identify the amount and timing of the _________ _________ required over the life of
the investment
2. Establish an appropriate interest rate to be used for evaluating the investment, called
the _________ ___ _________
3. Calculate and evaluate the net present value of the investment. - ✔✔cash flows, rate
of return
✔✔Is the weighted average costs associated with debt and equity used to fund long-
term investments - ✔✔cost of capital
✔✔Is the rate required to get an NPV of zero for a series of cash flows; represents the
time-adjusted rate of return for the investment being considered - ✔✔internal rate of
return (IRR)
✔✔States that if the IRR is greater than or equal to the company's required rate of
return (recall that this is often called the hurdle rate), the investment is accepted;
otherwise the investment is rejected - ✔✔IRR decision rule
✔✔For evaluating ________ _______ __________, managers must considere both the
quantitative analysis, which provides data to support decisions, and qualitative factors,
which are not easily measurable - ✔✔long-term investments
✔✔Evaluates how long it will take to recover the initial investment - ✔✔payback method
✔✔Is the time is takes to generate enough cash receipts from an investment to cover
the cash outflows for the investment - ✔✔payback period
✔✔What are the two weaknesses of the payback method? - ✔✔ignores the time value
of money and ignores cash flows after the payback period
✔✔What are opportunity costs?
a. The net gain that is given up when choosing one option over another.
b. The revenues forgone when choosing one option over another.
c. The costs avoided when choosing one option over another.
d. The costs associated with one option (opportunity). - ✔✔a
, ✔✔One of the products ABC company manufactures is picture frames. Which of the
following costs would be relevant when deciding whether to a make or buy (outsource)
the glass part of the frame?
a. The direct material cost of the glass.
b. The cost of equipment bought last year to cut the glass to size.
c. Depreciation on the factory building.
d. The plant manager's salary. - ✔✔a
✔✔What do we call costs that could be eliminated with one course of action, and are
always relevant to a decision?
a. allocated fixed costs
b. sunk costs
c. avoidable costs
d. opportunity costs - ✔✔c
✔✔What does it mean to 'capitalize and expense'?
a. To report the whole expense of a major investment in the time period when it was
purchased.
b. To report an expense in the capital expenditures account.
c. To spread a liability balance over a period of years.
d. To record the cost as an asset, then record a depreciation expense over a period of
years that accumulates to the purchase cost to offset that asset balance. - ✔✔d
✔✔What is the time value of money?
a. The monetary value of a project's future net cash flows at time zero.
b. The monetary value of accountants' time spent on a project.
c. Funds received today are worth less than the same amount received in the future
because of depreciation.
d. Funds received today are worth more than the same amount received in the future
because those funds could be invested today and earn interest in the interim. - ✔✔d
✔✔Involves establishing a master budget for the organization's operating activities (for
example, sales and production) - ✔✔the planning phase
✔✔Serves as a blueprint of short-term operations and is designed to help organizations
achieve their goals; often includes schedules that provide planning for sales, production,
selling and administrative expenses, and capital expenditures - ✔✔master budget
RATED A+
✔✔Three steps required to evaluate investments using the net present value are:
1. Identify the amount and timing of the _________ _________ required over the life of
the investment
2. Establish an appropriate interest rate to be used for evaluating the investment, called
the _________ ___ _________
3. Calculate and evaluate the net present value of the investment. - ✔✔cash flows, rate
of return
✔✔Is the weighted average costs associated with debt and equity used to fund long-
term investments - ✔✔cost of capital
✔✔Is the rate required to get an NPV of zero for a series of cash flows; represents the
time-adjusted rate of return for the investment being considered - ✔✔internal rate of
return (IRR)
✔✔States that if the IRR is greater than or equal to the company's required rate of
return (recall that this is often called the hurdle rate), the investment is accepted;
otherwise the investment is rejected - ✔✔IRR decision rule
✔✔For evaluating ________ _______ __________, managers must considere both the
quantitative analysis, which provides data to support decisions, and qualitative factors,
which are not easily measurable - ✔✔long-term investments
✔✔Evaluates how long it will take to recover the initial investment - ✔✔payback method
✔✔Is the time is takes to generate enough cash receipts from an investment to cover
the cash outflows for the investment - ✔✔payback period
✔✔What are the two weaknesses of the payback method? - ✔✔ignores the time value
of money and ignores cash flows after the payback period
✔✔What are opportunity costs?
a. The net gain that is given up when choosing one option over another.
b. The revenues forgone when choosing one option over another.
c. The costs avoided when choosing one option over another.
d. The costs associated with one option (opportunity). - ✔✔a
, ✔✔One of the products ABC company manufactures is picture frames. Which of the
following costs would be relevant when deciding whether to a make or buy (outsource)
the glass part of the frame?
a. The direct material cost of the glass.
b. The cost of equipment bought last year to cut the glass to size.
c. Depreciation on the factory building.
d. The plant manager's salary. - ✔✔a
✔✔What do we call costs that could be eliminated with one course of action, and are
always relevant to a decision?
a. allocated fixed costs
b. sunk costs
c. avoidable costs
d. opportunity costs - ✔✔c
✔✔What does it mean to 'capitalize and expense'?
a. To report the whole expense of a major investment in the time period when it was
purchased.
b. To report an expense in the capital expenditures account.
c. To spread a liability balance over a period of years.
d. To record the cost as an asset, then record a depreciation expense over a period of
years that accumulates to the purchase cost to offset that asset balance. - ✔✔d
✔✔What is the time value of money?
a. The monetary value of a project's future net cash flows at time zero.
b. The monetary value of accountants' time spent on a project.
c. Funds received today are worth less than the same amount received in the future
because of depreciation.
d. Funds received today are worth more than the same amount received in the future
because those funds could be invested today and earn interest in the interim. - ✔✔d
✔✔Involves establishing a master budget for the organization's operating activities (for
example, sales and production) - ✔✔the planning phase
✔✔Serves as a blueprint of short-term operations and is designed to help organizations
achieve their goals; often includes schedules that provide planning for sales, production,
selling and administrative expenses, and capital expenditures - ✔✔master budget
