FNAN 522 Exam (Chapter 9) Prep Questions All Correct Answers Updated.

FNAN 522 Exam (Chapter 9) Prep
Questions All Correct Answers 2026-
2027 Updated.
The internal rate of return is defined as the:

A. maximum rate of return a firm expects to earn on a project.

B. rate of return a project will generate if the project in financed solely with internal funds.

C. discount rate that equates the net cash inflows of a project to zero.

D. discount rate which causes the net present value of a project to equal zero.

E. discount rate that causes the profitability index for a project to equal zero. - Answer D.
discount rate which causes the net present value of a project to equal zero.



A project's average net income divided by its average book value is referred to as the project's
average:

A. net present value.

B. internal rate of return.

C. accounting return.

D. profitability index.

E. payback period - Answer C. accounting return.



A project has a net present value of zero. Which one of the following best describes this
project?

A. The project has a zero percent rate of return.

B. The project requires no initial cash investment.

C. The project has no cash flows.

D. The summation of all of the project's cash flows is zero.

E. The project's cash inflows equal its cash outflows in current dollar terms. - Answer E. The
project's cash inflows equal its cash outflows in current dollar terms.



Samuelson Electronics has a required payback period of three years for all of its projects.
Currently, the

firm is analyzing two independent projects. Project A has an expected payback period of 2.8
years and a net

present value of $6,800. Project B has an expected payback period of 3.1 years with a net
present value of

$28,400. Which projects should be accepted based on the payback decision rule?

A. Project A only

, B. Project B only

C. Both A and B

D. Neither A nor B

E. Answer cannot be determined based on the information given. - Answer A. Project A only



Douglass Interiors is considering two mutually exclusive projects and have determined that the
crossover

rate for these projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3
percent and

Project B has an IRR of 16.5 percent. Given this information, which one of the following
statements is

correct?

A. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.

B. Project B should be accepted as it has the higher IRR.

C. Both projects should be accepted as both of the project's IRRs exceed the crossover rate.

D. Neither project should be accepted since both of the project's IRRs exceed the crossover rate.

E. You cannot determine which project should be accepted given the information provided. -
Answer E. You cannot determine which project should be accepted given the information
provided.



You are considering a project with conventional cash flows and the following characteristics:

IRR: 11.63%

Profitability ratio: 1.04

Net Present Value: $987

Payback period: 2.98 years

Which of the following statements is correct given this information?

I. The discount rate used in computing the net present value was less than 11.63 percent.

II. The discounted payback period must be more than 2.98 years.

III. The discount rate used in the computation of the profitability ratio was 11.63 percent.

IV. This project should be accepted as the internal rate of return exceeds the required return.

A. I and II only

B. III and IV only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV - Answer C. I, II, and IV only