CASE STUDY BANC-ZERO NEW PRODUCT
DEVELOPMENT FINAL PAPER 2026 QUESTIONS
WITH SOLUTIONS GRADED A+
◉ The ultimate goal of the capital budgeting process is to ________.
A) determine how the consequences of making a particular decision
affects the firmʹs revenues and costs
B) list the projects and investments that a company plans to
undertake in the future
C) forecast the consequences of a list of future projects for the firm
D) determine the effect of the decision to accept or reject a project
on the firmʹs cash flows. Answer: D) determine the effect of the
decision to accept or reject a project on the firmʹs cash flows
◉ Which of the following best defines incremental earnings?
A) cash flows arising from a particular investment decision
B) the amount by which a firmʹs earnings are expected to change as
a result of an investment decision
C) the earnings arising from all projects that a company plans to
undertake in a fixed time span
D) the net present value (NPV) of earnings that a firm is expected to
receive as the result of an investment decision. Answer: B) the
,amount by which a firmʹs earnings are expected to change as a result
of an investment decision
◉ Which of the following best describes why the predicted
incremental earnings arising from a given decision are not sufficient
in and of themselves to determine whether that decision is
worthwhile?
A) They do not tell how the decision affects the firmʹs reported
profits from an accounting perspective.
B) They are not easily predicted from historical financial statements
of a firm and its competitors.
C) These earnings are not actual cash flows.
D) They do not show how the firmʹs earnings are expected to change
as the result of a particular decision.. Answer: C) These earnings are
not actual cash flows.
◉ Cameron Industries is purchasing a new chemical vapor depositor
in order to make silicon chips. It will cost $6 million to buy the
machine and $10,000 to have it delivered and installed. Building a
clean room in the plant for the machine will cost an additional $3
million. The machine is expected to have a working life of six years.
Which of these activities will be reported as an operating expense?
A) the delivery and install cost only
B) the cost of the depositor only
C) the redesign of the plant only
,D) the delivery and install cost and the cost of the depositor. Answer:
C) the redesign of the plant only
◉ Cameron Industries is purchasing a new chemical vapor depositor
in order to make silicon chips. It will cost $4 million to buy the
machine and $12,000 to have it delivered and installed. Building a
clean room in the plant for the machine will cost an additional $3
million. The machine is expected to have a working life of six years.
If straight-line depreciation is used, what are the yearly depreciation
expenses in this case?
A) $666,667
B) $668,667
C) $1,166,667
D) $1,168,667. Answer: B) $668,667
◉ An oil company is buying a semi-submersible oil rig for $15
million. Additionally, it will cost $1.5 million to move the oil rig to
the oil-field and to prepare it for operations. If it is depreciated over
five years using straight-line depreciation, what are the yearly
depreciation expenses in this case?
A) $2.7 million
B) $3.0 million
C) $3.3 million
D) $3.8 million. Answer: C) $3.3 million
, ◉ Which of the following is usually NOT a factor that must be
considered when estimating the revenues and costs arising from a
new product?
A) the fluctuations in the cost of capital over the period in question
B) the sales of a new product will typically accelerate, plateau, and
ultimately decline over time
C) the prices of technology products generally fall over time
D) competition tends to reduce profit margins over time in most
industries. Answer: A) the fluctuations in the cost of capital over the
period in question
◉ Vernon-Nelson Chemicals is planning to release a new brand of
insecticide, Bee-Safe, that will kill many insect pests but not harm
useful pollinators. Buying new equipment to manufacture the
product will cost $15 million, and there will be an additional $2
million cost to reconfigure existing plant. The equipment is expected
to have a lifetime of nine years and will be depreciated by the
straight-line method over its lifetime. The firm expects that they
should be able to sell 1,500,000 gallons per year at a price of $53 per
gallon. It will take $36 per gallon to manufacture and support the
product. If Vernon-Nelsonʹs marginal tax rate is 40%, what are the
incremental earnings after tax in year 3 of this project?
A) $25.5 million
B) $14.3 million
C) $23.8 million
D) $9.5 million. Answer: B) $14.3 million
DEVELOPMENT FINAL PAPER 2026 QUESTIONS
WITH SOLUTIONS GRADED A+
◉ The ultimate goal of the capital budgeting process is to ________.
A) determine how the consequences of making a particular decision
affects the firmʹs revenues and costs
B) list the projects and investments that a company plans to
undertake in the future
C) forecast the consequences of a list of future projects for the firm
D) determine the effect of the decision to accept or reject a project
on the firmʹs cash flows. Answer: D) determine the effect of the
decision to accept or reject a project on the firmʹs cash flows
◉ Which of the following best defines incremental earnings?
A) cash flows arising from a particular investment decision
B) the amount by which a firmʹs earnings are expected to change as
a result of an investment decision
C) the earnings arising from all projects that a company plans to
undertake in a fixed time span
D) the net present value (NPV) of earnings that a firm is expected to
receive as the result of an investment decision. Answer: B) the
,amount by which a firmʹs earnings are expected to change as a result
of an investment decision
◉ Which of the following best describes why the predicted
incremental earnings arising from a given decision are not sufficient
in and of themselves to determine whether that decision is
worthwhile?
A) They do not tell how the decision affects the firmʹs reported
profits from an accounting perspective.
B) They are not easily predicted from historical financial statements
of a firm and its competitors.
C) These earnings are not actual cash flows.
D) They do not show how the firmʹs earnings are expected to change
as the result of a particular decision.. Answer: C) These earnings are
not actual cash flows.
◉ Cameron Industries is purchasing a new chemical vapor depositor
in order to make silicon chips. It will cost $6 million to buy the
machine and $10,000 to have it delivered and installed. Building a
clean room in the plant for the machine will cost an additional $3
million. The machine is expected to have a working life of six years.
Which of these activities will be reported as an operating expense?
A) the delivery and install cost only
B) the cost of the depositor only
C) the redesign of the plant only
,D) the delivery and install cost and the cost of the depositor. Answer:
C) the redesign of the plant only
◉ Cameron Industries is purchasing a new chemical vapor depositor
in order to make silicon chips. It will cost $4 million to buy the
machine and $12,000 to have it delivered and installed. Building a
clean room in the plant for the machine will cost an additional $3
million. The machine is expected to have a working life of six years.
If straight-line depreciation is used, what are the yearly depreciation
expenses in this case?
A) $666,667
B) $668,667
C) $1,166,667
D) $1,168,667. Answer: B) $668,667
◉ An oil company is buying a semi-submersible oil rig for $15
million. Additionally, it will cost $1.5 million to move the oil rig to
the oil-field and to prepare it for operations. If it is depreciated over
five years using straight-line depreciation, what are the yearly
depreciation expenses in this case?
A) $2.7 million
B) $3.0 million
C) $3.3 million
D) $3.8 million. Answer: C) $3.3 million
, ◉ Which of the following is usually NOT a factor that must be
considered when estimating the revenues and costs arising from a
new product?
A) the fluctuations in the cost of capital over the period in question
B) the sales of a new product will typically accelerate, plateau, and
ultimately decline over time
C) the prices of technology products generally fall over time
D) competition tends to reduce profit margins over time in most
industries. Answer: A) the fluctuations in the cost of capital over the
period in question
◉ Vernon-Nelson Chemicals is planning to release a new brand of
insecticide, Bee-Safe, that will kill many insect pests but not harm
useful pollinators. Buying new equipment to manufacture the
product will cost $15 million, and there will be an additional $2
million cost to reconfigure existing plant. The equipment is expected
to have a lifetime of nine years and will be depreciated by the
straight-line method over its lifetime. The firm expects that they
should be able to sell 1,500,000 gallons per year at a price of $53 per
gallon. It will take $36 per gallon to manufacture and support the
product. If Vernon-Nelsonʹs marginal tax rate is 40%, what are the
incremental earnings after tax in year 3 of this project?
A) $25.5 million
B) $14.3 million
C) $23.8 million
D) $9.5 million. Answer: B) $14.3 million
