FIN 6100 MODULE 4 EXAM QUESTIONS
WITH 100% CORRECT ANSWERS |
LATEST VERSION 2025/2026.
Side Effects - ANS Which of the following items would you find in the operating cash flow?
a) Side Effects
b) Net salvage value of assets
c) Opportunity Costs
d) WACC
Internal rate of return - ANS Which decision rule compares the rate of return earned on your
investment to the weighted average cost of capital when deciding whether you want to accept
a project?
a) Net present value
b) Internal rate of return
c) Profitability index
d) Payback period
False - ANS The net income shown on the income statement is the same as the operating
cash flow
True/False
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, B. II and III only - ANS The internal rate of return (IRR):
(I) rule states that a typical investment project with an IRR that is less than the required rate
should be accepted.
(II) is the rate generated solely by the cash flows of an investment.
(III) is the rate that causes the net present value of a project to exactly equal zero.
(IV) can effectively be used to analyze all investment scenarios.
A. I and IV only
B. II and III only
C. I, II, and III only D. II, III, and IV only
E. I, II, III, and IV
C. You should accept both projects since both of their PIs are greater than 1. - ANS You are
considering two independent projects both of which have been assigned a discount rate of 8% .
Based on the profitability index, what is your recommendation concerning these projects?
Project A
Year Cash Flow
0 -$38,500
1 $20,000
2 $24,000
Project B
Year Cash Flow
0 -$42,000
1 $10,000
2 $40,000
2 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
WITH 100% CORRECT ANSWERS |
LATEST VERSION 2025/2026.
Side Effects - ANS Which of the following items would you find in the operating cash flow?
a) Side Effects
b) Net salvage value of assets
c) Opportunity Costs
d) WACC
Internal rate of return - ANS Which decision rule compares the rate of return earned on your
investment to the weighted average cost of capital when deciding whether you want to accept
a project?
a) Net present value
b) Internal rate of return
c) Profitability index
d) Payback period
False - ANS The net income shown on the income statement is the same as the operating
cash flow
True/False
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, B. II and III only - ANS The internal rate of return (IRR):
(I) rule states that a typical investment project with an IRR that is less than the required rate
should be accepted.
(II) is the rate generated solely by the cash flows of an investment.
(III) is the rate that causes the net present value of a project to exactly equal zero.
(IV) can effectively be used to analyze all investment scenarios.
A. I and IV only
B. II and III only
C. I, II, and III only D. II, III, and IV only
E. I, II, III, and IV
C. You should accept both projects since both of their PIs are greater than 1. - ANS You are
considering two independent projects both of which have been assigned a discount rate of 8% .
Based on the profitability index, what is your recommendation concerning these projects?
Project A
Year Cash Flow
0 -$38,500
1 $20,000
2 $24,000
Project B
Year Cash Flow
0 -$42,000
1 $10,000
2 $40,000
2 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
