FNAN 522 Final Exam Questions with All
Correct Answers 2026-2027 Updated.
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year after
the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the initial
investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of the year.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - Answer d. $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn $25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Answer d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - Answer a. To compare two
projects that have an equal initial investment and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true?
a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
, c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - Answer c. The internal rate
of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this project
is 15.3%. You are still negotiating the purchase price of the equipment. What is the most you
can pay for the equipment and still have a positive NPV?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - Answer d. $12.6 million
Which of the following could be a sunk cost?
a. A feasibility study that attempted to determine the economic viability of a project.
b. All of these answers.
c. Labor hours spent on planning project.
d. Equipment purchased to pursue a project. - Answer b. All of these answers.
Which of the following is an example of an opportunity cost?
a. If invest in one of two projects, the cost is the lost revenue from the other project.
b. If you buy a candy bar instead of a soda, the cost is thirst.
c. All of these answers.
d. If you watch a game instead of going for a run, the cost is poorer personal health. - Answer
c. All of these answers.
Which of the following is the best reason to use the payback method to evaluate investments?
Select one:
a. The payback method covers all cash inflows and outflows for the duration of the investment.
b. If you use the payback method, you do not need to perform additional analyses.
c. The payback method is easy to use and understand for most people, regardless of training.
d. The payback method adjusts for the project's riskiness. - Answer c. The payback method is
easy to use and understand for most people, regardless of training.
Correct Answers 2026-2027 Updated.
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year after
the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the initial
investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of the year.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - Answer d. $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn $25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Answer d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - Answer a. To compare two
projects that have an equal initial investment and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true?
a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
, c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - Answer c. The internal rate
of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this project
is 15.3%. You are still negotiating the purchase price of the equipment. What is the most you
can pay for the equipment and still have a positive NPV?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - Answer d. $12.6 million
Which of the following could be a sunk cost?
a. A feasibility study that attempted to determine the economic viability of a project.
b. All of these answers.
c. Labor hours spent on planning project.
d. Equipment purchased to pursue a project. - Answer b. All of these answers.
Which of the following is an example of an opportunity cost?
a. If invest in one of two projects, the cost is the lost revenue from the other project.
b. If you buy a candy bar instead of a soda, the cost is thirst.
c. All of these answers.
d. If you watch a game instead of going for a run, the cost is poorer personal health. - Answer
c. All of these answers.
Which of the following is the best reason to use the payback method to evaluate investments?
Select one:
a. The payback method covers all cash inflows and outflows for the duration of the investment.
b. If you use the payback method, you do not need to perform additional analyses.
c. The payback method is easy to use and understand for most people, regardless of training.
d. The payback method adjusts for the project's riskiness. - Answer c. The payback method is
easy to use and understand for most people, regardless of training.
