FINA 5170 Exam 3 Revision Test Papers
with Already Passed Answers (2025-
2026) Edition.
Which of the following investment rules may not use all possible cash flows in its calculations? -
Answer payback period
If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that
project is: - Answer zero
If the sign of the cash flows for a project changes two times, then the project likely has: -
Answer two IRRs
The profitability index is the ratio of the: - Answer net present value of cash flows to
investment
The IRR is defined as - Answer the discount rate that makes a project's NPV equal to zero.
If the net present value (NPV) of project A is +$100, and that of project B is +$60, then the net
present value of the combined projects is: - Answer NPV(A + B) = NPV(A) + NPV(B) = 100 + 60 =
160.
What is the profitability index of an investment with cash flows in years 0 thru 4 of -340, 120,
130, 153, and 166, respectively, and a discount rate of 16%? - Answer NPV = 49.7 PI =
49.7/340 = .15.
The following table gives the available projects (in $millions) for a firm.
Picture
If the firm has a limit of 210 million to invest, what is the maximum NPV the company can
obtain? - Answer A + B + C + F = 140 + 70 + 65 + 32 = 307; Total investment = 90 + 20 + 60 + 40
= 210.
, Given the following cash flows for project A: C0 = -3,000, C1 = +500, C2 = +1,500, and C3 =
+5,000, calculate the NPV of the project using a 15% discount rate. - Answer NPV = -3000 +
(500/1.15) + (1500/1.15^2) + (5000/1.15^3) = 1857.
Music Company is considering investing in a new project. The project will need an initial
investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years.
Calculate the NPV for the project if the cost of capital is 15%. - Answer NPV = -2,400,000 +
[(1,200,000)/(1.15)] + [(1,200,000/(1.15)^2] + [1,200,000/(1.15)^3] = 339,870.
The net present value of a project depends upon the: - Answer project's cash flows and
opportunity cost of capital.
You are given a job to make a decision on project X, which is composed of three independent
projects A, B, and C that have NPVs of + $70, -$40 and + $100, respectively. How would you go
about making the decision about whether to accept or reject the project? - Answer Break up
the project into its components: accept A and C, but reject B.
Given the following cash flows for project A: C0 = -1,000, C1 = +600, C2 = +400, and C3 = +1,500,
calculate the payback period. - Answer Initial investment: 1,000 = CF1 + CF2 = 600 + 400;
payback period = two years.
Project X has the following cash flows: C0 = +2,000, C1 = -1,150, and C2 = -1,150. If the IRR of
the project is 9.85% and if the cost of capital is 12%, you would: - Answer This is a loan project
(i.e., borrowing) with IRR less than the cost of capital. Therefore accept it.
The cost of a resource that may be relevant to an investment decision even when no cash
changes hand is called a(an): - Answer opportunity cost.
For project Z, year 5 inventories increase by $6,000, accounts receivable by $4,000, and
accounts payable by $3,000. Calculate the increase or decrease in working capital for year 5. -
Answer Change in working capital = 6000 + 4000 - 3000 = +7,000.
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost
$42,000. The object is to save on horse transporter rentals.
Marsha had been renting a transporter every other week for $207 per day plus $1.35 per mile.
Most of the trips are 90 miles in total. Marsha usually gives the driver a $50 tip. With the new
transporter she will only have to pay for diesel fuel and maintenance, at about $0.52 per mile.
Insurance costs for Marsha's transporter are $1,550 per year.
with Already Passed Answers (2025-
2026) Edition.
Which of the following investment rules may not use all possible cash flows in its calculations? -
Answer payback period
If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that
project is: - Answer zero
If the sign of the cash flows for a project changes two times, then the project likely has: -
Answer two IRRs
The profitability index is the ratio of the: - Answer net present value of cash flows to
investment
The IRR is defined as - Answer the discount rate that makes a project's NPV equal to zero.
If the net present value (NPV) of project A is +$100, and that of project B is +$60, then the net
present value of the combined projects is: - Answer NPV(A + B) = NPV(A) + NPV(B) = 100 + 60 =
160.
What is the profitability index of an investment with cash flows in years 0 thru 4 of -340, 120,
130, 153, and 166, respectively, and a discount rate of 16%? - Answer NPV = 49.7 PI =
49.7/340 = .15.
The following table gives the available projects (in $millions) for a firm.
Picture
If the firm has a limit of 210 million to invest, what is the maximum NPV the company can
obtain? - Answer A + B + C + F = 140 + 70 + 65 + 32 = 307; Total investment = 90 + 20 + 60 + 40
= 210.
, Given the following cash flows for project A: C0 = -3,000, C1 = +500, C2 = +1,500, and C3 =
+5,000, calculate the NPV of the project using a 15% discount rate. - Answer NPV = -3000 +
(500/1.15) + (1500/1.15^2) + (5000/1.15^3) = 1857.
Music Company is considering investing in a new project. The project will need an initial
investment of $2,400,000 and will generate $1,200,000 (after-tax) cash flows for three years.
Calculate the NPV for the project if the cost of capital is 15%. - Answer NPV = -2,400,000 +
[(1,200,000)/(1.15)] + [(1,200,000/(1.15)^2] + [1,200,000/(1.15)^3] = 339,870.
The net present value of a project depends upon the: - Answer project's cash flows and
opportunity cost of capital.
You are given a job to make a decision on project X, which is composed of three independent
projects A, B, and C that have NPVs of + $70, -$40 and + $100, respectively. How would you go
about making the decision about whether to accept or reject the project? - Answer Break up
the project into its components: accept A and C, but reject B.
Given the following cash flows for project A: C0 = -1,000, C1 = +600, C2 = +400, and C3 = +1,500,
calculate the payback period. - Answer Initial investment: 1,000 = CF1 + CF2 = 600 + 400;
payback period = two years.
Project X has the following cash flows: C0 = +2,000, C1 = -1,150, and C2 = -1,150. If the IRR of
the project is 9.85% and if the cost of capital is 12%, you would: - Answer This is a loan project
(i.e., borrowing) with IRR less than the cost of capital. Therefore accept it.
The cost of a resource that may be relevant to an investment decision even when no cash
changes hand is called a(an): - Answer opportunity cost.
For project Z, year 5 inventories increase by $6,000, accounts receivable by $4,000, and
accounts payable by $3,000. Calculate the increase or decrease in working capital for year 5. -
Answer Change in working capital = 6000 + 4000 - 3000 = +7,000.
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost
$42,000. The object is to save on horse transporter rentals.
Marsha had been renting a transporter every other week for $207 per day plus $1.35 per mile.
Most of the trips are 90 miles in total. Marsha usually gives the driver a $50 tip. With the new
transporter she will only have to pay for diesel fuel and maintenance, at about $0.52 per mile.
Insurance costs for Marsha's transporter are $1,550 per year.
