BA 323 Exam 3 DATA Modeling Analytics
Workbook Compilation Questions and
Answers Verified Solutions Latest Update
2026/2027
Question:
Should the company use the composite WACC as the hurdle rate for each project? Why not?
Answer:
No
projects typically have different riskiness.
Question:
What are flotation costs and why do they make retained earnings cheaper than issuing new
common stock?
Answer:
Transaction costs
associated with issuing new securities
Question:
What is capital budgeting?
Answer:
Analysis of potential additions to fixed assets and rates of return
Question:
What is a company's strategic business plan?
Answer:
A long plan that outlines in broad terms the firm's basic strategy for the next 5-10 years.
,Question:
What are the 5 criteria used to accept or reject a project?
Answer:
- Net Present value
- Internal rate of return
- Modified internal rate of return
- Regular payback
- Discounted payback
Question:
What is the difference between independent and mutually exclusive projects?
Answer:
Independent projects:
- the cash flows of one project are unaffected by the acceptance of
the other
Mutually exclusive projects
- the cash flows of one can be adversely impacted by the acceptance
of other projects.
Question:
Which type of project is harder to calculate: independent or mutually exclusive?
Answer:
Mutually exclusive?
Question:
Explain the difference between normal and non-normal cash flow streams.
Answer:
Normal cash flow stream
- has an initial negative cash flow followed by a series of positive
cash inflows
Non-normal cash flow stream
, - have 2 or more changes of signs.
Question:
Which cash flow stream is most common: normal or non-normal? Why?
Answer:
Normal cash flow stream
Question:
Know how to calculate a project's NPV and how to use NPV decision rules to decide whether or
not to accept the project.
Answer:
If project NPV > 0 if independent, ACCEPT
If mutually exclusive, accept project with highest NPV
Question:
What is the IRR (internal rate of return)?
Answer:
The discount rate that forces the present value of the cash inflows to equal the price of the bond.
(Or forcing the NPV to equal zero).
Question:
Know how to solve for the IRR
Know the decisions rules for using IRR to accept or reject a project.
Answer:
IRR > WACC, ACCEPT
If mutually exclusive, accept project with the highest IRR
Question:
What are the different reinvestment rate assumptions for the NPV method versus the IRR method.
Workbook Compilation Questions and
Answers Verified Solutions Latest Update
2026/2027
Question:
Should the company use the composite WACC as the hurdle rate for each project? Why not?
Answer:
No
projects typically have different riskiness.
Question:
What are flotation costs and why do they make retained earnings cheaper than issuing new
common stock?
Answer:
Transaction costs
associated with issuing new securities
Question:
What is capital budgeting?
Answer:
Analysis of potential additions to fixed assets and rates of return
Question:
What is a company's strategic business plan?
Answer:
A long plan that outlines in broad terms the firm's basic strategy for the next 5-10 years.
,Question:
What are the 5 criteria used to accept or reject a project?
Answer:
- Net Present value
- Internal rate of return
- Modified internal rate of return
- Regular payback
- Discounted payback
Question:
What is the difference between independent and mutually exclusive projects?
Answer:
Independent projects:
- the cash flows of one project are unaffected by the acceptance of
the other
Mutually exclusive projects
- the cash flows of one can be adversely impacted by the acceptance
of other projects.
Question:
Which type of project is harder to calculate: independent or mutually exclusive?
Answer:
Mutually exclusive?
Question:
Explain the difference between normal and non-normal cash flow streams.
Answer:
Normal cash flow stream
- has an initial negative cash flow followed by a series of positive
cash inflows
Non-normal cash flow stream
, - have 2 or more changes of signs.
Question:
Which cash flow stream is most common: normal or non-normal? Why?
Answer:
Normal cash flow stream
Question:
Know how to calculate a project's NPV and how to use NPV decision rules to decide whether or
not to accept the project.
Answer:
If project NPV > 0 if independent, ACCEPT
If mutually exclusive, accept project with highest NPV
Question:
What is the IRR (internal rate of return)?
Answer:
The discount rate that forces the present value of the cash inflows to equal the price of the bond.
(Or forcing the NPV to equal zero).
Question:
Know how to solve for the IRR
Know the decisions rules for using IRR to accept or reject a project.
Answer:
IRR > WACC, ACCEPT
If mutually exclusive, accept project with the highest IRR
Question:
What are the different reinvestment rate assumptions for the NPV method versus the IRR method.
