FNAN 522 Final Exam Praveen Das
questions with complete solutions
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. - correct answer ✔✔$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. - correct answer ✔✔2.21%
In which of the following situations would it be
appropriate to use the IRR method to make an
investment decision? - correct answer ✔✔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? - correct answer ✔✔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? - correct answer ✔✔$12.6 million
Which of the following could be a sunk cost? - correct answer ✔✔All of these answers.
Which of the following is an example of an
opportunity cost? - correct answer ✔✔All of these answers.
Which of the following is the best reason to use
the payback method to evaluate investments? - correct answer ✔✔The payback method is easy
to use and
understand for most people, regardless of
training.
questions with complete solutions
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. - correct answer ✔✔$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. - correct answer ✔✔2.21%
In which of the following situations would it be
appropriate to use the IRR method to make an
investment decision? - correct answer ✔✔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? - correct answer ✔✔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? - correct answer ✔✔$12.6 million
Which of the following could be a sunk cost? - correct answer ✔✔All of these answers.
Which of the following is an example of an
opportunity cost? - correct answer ✔✔All of these answers.
Which of the following is the best reason to use
the payback method to evaluate investments? - correct answer ✔✔The payback method is easy
to use and
understand for most people, regardless of
training.
