FIN370 EXAM ACTUAL QUESTIONS
AND VERIFIED ANSWERS 2025-2026
1. What types of cost are included in an asset's depreciable basis? Select all that apply?
- ANSWER-Sales tax and freight charges
Purchase price of the asset
Installation and testing costs
2. Which one of these computes the amount of annual depreciation using the straight-
line method? Ignore the half-year convention. - ANSWER-(Depreciable basis - Ending
book value) / Life of asset
3. A firm purchased a new machine costing $28,000 including sales tax. It also paid
$2000 for delivery and installation. The machine has a life of 6 years and an expected
ending book value of $5000. How the depreciation is computed using the straight-line
method? Ignore the half year convention. - ANSWER-($28000 + $2000 - $5000) / 6
4. Which one of these is a correct formula for OCF, assuming there is no interest
expense? - ANSWER-Net income + depreciation
5. Manor's purchases some equipment in preparation for a new project. Which of these
are time zero cash flows for that project? Select all that apply - ANSWER-Purchase
price of the equipment
Installation and initial testing costs
Shipping costs to have the equipment delivered
6. What types of activities related to a project's fixed assets can create a cash flow for
the final year of a project? Select all that apply. - ANSWER-Selling the project's
equipment
Scrapping equipment that has a positive book value but no market value
Trading in the projects' equipment on new equipment for other projects.
7. In pro forma analysis, what determines whether or not an account on the balance
sheet or income statement is relevant to a project? - ANSWER-The projected causes an
account to change, then it is revelant.
8. How can you determine if a cash flow is incremental to a project? - ANSWER-The
cash flow will disappear when the project ceases
The cash flow changes only when a new project is implemented
The cash flow occurs only if a new project is implemented
9. What is an opportunity cost? - ANSWER-The value of the next best alternative use of
a resource owned or employed by a firm.
, 10. Which one of these represents an opportunity cost? - ANSWER-Assigning a current
employee to a new project
11. Which of these illustrates a complementary effect? Select all that apply. - ANSWER-
A new product increases traffic flow thereby increasing the revenue generated by a
firm's existing products.
A new product increases the sales of the firm's existing products.
12. How is the gain or loss on a sale of equipment determined? - ANSWER-Gain (loss)
= Market Value - Book Value
13. A project has a 3-year life and annual sales projections of $120,000, $160,000 and
$190,000 for years 1 to 3, respectively. The project requires net working capital (NWC)
equal to 5 percent of the next year's sales. How is this requirement handled in project
analysis? Select all that apply. - ANSWER-A cash flow of [0.05 x ($160,000 - $120,000)]
is recorded in year 1
A cash outflow of (0.05 x $120,000) is recorded at time zero
A cash flow of (0.05 x $190,000) occurs in year 3
14. How is net working capital defined? - ANSWER-Current assets - Current liabilities
15. A project has a 3-year life and requires equipment costing $34,000. The OCF is
estimated at $16,000 annually. NWC of $3500 is required over the project's life. What
cash flows occur at time zero? Select all that apply. - ANSWER--$34,000
-$3,500
16. What is pro forma analysis? - ANSWER-Estimation of future project cash flows
using only the relevant parts of the financial statement.
17. What is an incremental cash flow? - ANSWER-A cash flow that either increases or
decreases when a new project is implemented
18. Which one of these is an example of the substitution effect? - ANSWER-Current
employee costs are lowered due to the automation process implemented by a new
project.
19. McGinty's purchased a new machine for $318,000, paid $19,000 in sales tax, and
$7,500 in deliver charges. The firm paid $3,400 to have the machine calibrated once it
was set in place. The machine requires $5,600 of annual maintenance. What is the
depreciable basis of the machine? - ANSWER-$347,900
Formula: Depreciable basis = $318,00 + 19,000 + $7,500 + $3,400 = $347,900
20. How can straight-line depreciation be defined? Ignore the half-year convention. -
ANSWER-Total amount to be depreciated spread over an asset's life.
AND VERIFIED ANSWERS 2025-2026
1. What types of cost are included in an asset's depreciable basis? Select all that apply?
- ANSWER-Sales tax and freight charges
Purchase price of the asset
Installation and testing costs
2. Which one of these computes the amount of annual depreciation using the straight-
line method? Ignore the half-year convention. - ANSWER-(Depreciable basis - Ending
book value) / Life of asset
3. A firm purchased a new machine costing $28,000 including sales tax. It also paid
$2000 for delivery and installation. The machine has a life of 6 years and an expected
ending book value of $5000. How the depreciation is computed using the straight-line
method? Ignore the half year convention. - ANSWER-($28000 + $2000 - $5000) / 6
4. Which one of these is a correct formula for OCF, assuming there is no interest
expense? - ANSWER-Net income + depreciation
5. Manor's purchases some equipment in preparation for a new project. Which of these
are time zero cash flows for that project? Select all that apply - ANSWER-Purchase
price of the equipment
Installation and initial testing costs
Shipping costs to have the equipment delivered
6. What types of activities related to a project's fixed assets can create a cash flow for
the final year of a project? Select all that apply. - ANSWER-Selling the project's
equipment
Scrapping equipment that has a positive book value but no market value
Trading in the projects' equipment on new equipment for other projects.
7. In pro forma analysis, what determines whether or not an account on the balance
sheet or income statement is relevant to a project? - ANSWER-The projected causes an
account to change, then it is revelant.
8. How can you determine if a cash flow is incremental to a project? - ANSWER-The
cash flow will disappear when the project ceases
The cash flow changes only when a new project is implemented
The cash flow occurs only if a new project is implemented
9. What is an opportunity cost? - ANSWER-The value of the next best alternative use of
a resource owned or employed by a firm.
, 10. Which one of these represents an opportunity cost? - ANSWER-Assigning a current
employee to a new project
11. Which of these illustrates a complementary effect? Select all that apply. - ANSWER-
A new product increases traffic flow thereby increasing the revenue generated by a
firm's existing products.
A new product increases the sales of the firm's existing products.
12. How is the gain or loss on a sale of equipment determined? - ANSWER-Gain (loss)
= Market Value - Book Value
13. A project has a 3-year life and annual sales projections of $120,000, $160,000 and
$190,000 for years 1 to 3, respectively. The project requires net working capital (NWC)
equal to 5 percent of the next year's sales. How is this requirement handled in project
analysis? Select all that apply. - ANSWER-A cash flow of [0.05 x ($160,000 - $120,000)]
is recorded in year 1
A cash outflow of (0.05 x $120,000) is recorded at time zero
A cash flow of (0.05 x $190,000) occurs in year 3
14. How is net working capital defined? - ANSWER-Current assets - Current liabilities
15. A project has a 3-year life and requires equipment costing $34,000. The OCF is
estimated at $16,000 annually. NWC of $3500 is required over the project's life. What
cash flows occur at time zero? Select all that apply. - ANSWER--$34,000
-$3,500
16. What is pro forma analysis? - ANSWER-Estimation of future project cash flows
using only the relevant parts of the financial statement.
17. What is an incremental cash flow? - ANSWER-A cash flow that either increases or
decreases when a new project is implemented
18. Which one of these is an example of the substitution effect? - ANSWER-Current
employee costs are lowered due to the automation process implemented by a new
project.
19. McGinty's purchased a new machine for $318,000, paid $19,000 in sales tax, and
$7,500 in deliver charges. The firm paid $3,400 to have the machine calibrated once it
was set in place. The machine requires $5,600 of annual maintenance. What is the
depreciable basis of the machine? - ANSWER-$347,900
Formula: Depreciable basis = $318,00 + 19,000 + $7,500 + $3,400 = $347,900
20. How can straight-line depreciation be defined? Ignore the half-year convention. -
ANSWER-Total amount to be depreciated spread over an asset's life.
