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CORPORATE FINANCE FIN 300 EXAMS OF FINANCE
FULL PACKAGE QUESTIONS ANSWERS AND
RATIONALES 2026-27 VERSION
The FIN 300 Corporate Finance Exam evaluates your mastery of corporate resource allocation, investment
selection, capital structure optimizations, and firm valuation.
Below is an analytical breakdown of core corporate finance frameworks, followed by a targeted, exam-style
practice bank spanning questions 1 through 100, designed to match the quantitative and conceptual standards
of advanced undergraduate finance evaluations.
FIN 300 Core Testing Blueprints
• Time Value of Money (TVM): Multi-period discounting, non-annual compounding frequency, complex
perpetuities, and growing annuities. [1]
• Capital Budgeting: Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and
crossover rates under mutually exclusive project constraints. [1]
• Cost of Capital & WACC: Calculating component costs of debt, preferred stock, and common equity
via CAPM and Dividend Growth Models (DGM). [1, 2, 3, 4]
• Valuation & Financial Modeling: Free Cash Flow to the Firm (FCFF), Free Cash Flow to Equity (FCFE),
and Multi-Stage Dividend Discount Models. [1, 2]
• Risk, Return, & Leverage: Capital Asset Pricing Model (CAPM), Beta levering/unlevering formulas
(Hamada Equation), and Modigliani-Miller capital structure theorems. [1]
Core Financial Concept Visualization
The diagram below illustrates the relationship between a firm's leverage, its component costs of capital, and
the Weighted Average Cost of Capital (WACC), highlighting the Optimal Capital Structure point that minimizes
cost and maximizes firm value
,2
1. A firm is evaluating a project with cash flows of -$100,000 at Year 0,
$40,000 at Year 1, $50,000 at Year 2, and $60,000 at Year 3. If the required
rate of return is 10%, what is the Net Present Value (NPV)?
A. $21,432.18
B. $23,215.63
C. $25,110.22
D. $18,443.90
Explanation: NPV = -$100,000 + ($40,.10^1) + ($50,.10^2) +
($60,.10^3) = -$100,000 + $36,363.64 + $41,322.31 + $45,078.89 =
$23,215.63. Since NPV > 0, the project should be accepted.
2. According to the Capital Asset Pricing Model (CAPM), what is the expected
return of a stock with a beta of 1.25, given a risk-free rate of 4% and a market
risk premium of 6%?
A. 9.0%
B. 10.5%
C. 11.5%
D. 12.0% [1, 2, 3, 4]
Explanation: Expected Return = Risk-Free Rate + Beta * (Market Risk Premium)
= 4% + 1.25 * 6% = 4% + 7.5% = 11.5%. [1]
3. A company has outstanding bonds with a 7% coupon rate, paid semi-
annually, and 10 years left to maturity. If the bonds currently sell for $1,050
and have a par value of $1,000, what is the nominal Yield to Maturity (YTM)?
[1]
A. 6.12%
B. 6.31%
C. 6.78%
D. 7.00%
,3
Explanation: Using financial calculator inputs: N = 20, PV = -1050, PMT = 35, FV
= 1000. Solving for I/Y yields 3.153%. The nominal annual YTM is 3.153% * 2 =
6.306%, or approximately 6.31%.
4. Project A and Project B are mutually exclusive. Project A has an NPV of
$10,000 and an IRR of 18%. Project B has an NPV of $12,000 and an IRR of
15%. If the firm's cost of capital is 10%, which project should be selected? [1]
A. Project A, because its IRR is higher.
B. Project B, because its NPV is higher.
C. Neither project, because their IRRs conflict.
D. Both projects, because both NPVs are positive. [1, 2, 3]
Explanation: For mutually exclusive projects, the NPV rule always takes
precedence over the IRR rule because NPV measures absolute wealth creation,
whereas IRR can be distorted by scale and reinvestment rate assumptions. [1, 2,
3, 4]
5. A firm has a capital structure consisting of 40% debt and 60% equity. The
pre-tax cost of debt is 8%, the tax rate is 25%, and the cost of equity is 12%.
What is the firm's Weighted Average Cost of Capital (WACC)? [1, 2, 3, 4, 5]
A. 8.8%
B. 9.6%
C. 10.4%
D. 11.2%
Explanation: WACC = (Weight of Debt * After-tax Cost of Debt) + (Weight of
Equity * Cost of Equity) = [0.40 * 8% * (1 - 0.25)] + [0.60 * 12%] = [0.40 * 6%] +
7.2% = 2.4% + 7.2% = 9.6%. [1, 2]
6. A share of preferred stock pays a constant annual dividend of $4.50. If
investors require an 8% rate of return, what is the current value of the stock?
A. $36.00
B. $50.00
C. $56.25
C. $62.50
, 4
Explanation: Value of Preferred Stock = Dividend / Required Return = $4.50 /
0.08 = $56.25. [1]
7. If a firm increases its debt-to-equity ratio, Modigliani and Miller
Proposition II (without taxes) states that the cost of equity will behave in
which manner? [1, 2]
A. Decrease linearly to offset cheaper debt.
B. Remain completely constant.
C. Increase linearly to offset the added financial risk.
D. Increase exponentially, causing the WACC to rise. [1]
Explanation: MM Proposition II without taxes demonstrates that as a firm adds
cheaper debt, the risk to equity holders increases proportionally, causing the
cost of equity to rise linearly. This leaves the overall WACC unchanged. [1]
8. A stock just paid an annual dividend of $2.00 (D0 = $2.00). Dividends are
expected to grow at a constant rate of 5% per year indefinitely. If the required
return is 11%, what is the intrinsic value of the stock today? [1, 2]
A. $33.33
B. $35.00
C. $35.00
D. $36.75
Explanation: Intrinsic Value = D1 / (r - g) = [D0 * (1 + g)] / (r - g) = [$2.00 * 1.05]
/ (0.11 - 0.05) = $2..06 = $35.00.
9. A company is considering a machine costing $60,000. It will generate
uniform cash inflows of $15,000 per year for 6 years. What is the project's
Payback Period?
A. 3.0 years
B. 4.0 years
C. 4.5 years
D. 5.0 years
Explanation: Payback Period = Initial Investment / Annual Cash Inflow =
$60,000 / $15,000 = 4.0 years. [1]
CORPORATE FINANCE FIN 300 EXAMS OF FINANCE
FULL PACKAGE QUESTIONS ANSWERS AND
RATIONALES 2026-27 VERSION
The FIN 300 Corporate Finance Exam evaluates your mastery of corporate resource allocation, investment
selection, capital structure optimizations, and firm valuation.
Below is an analytical breakdown of core corporate finance frameworks, followed by a targeted, exam-style
practice bank spanning questions 1 through 100, designed to match the quantitative and conceptual standards
of advanced undergraduate finance evaluations.
FIN 300 Core Testing Blueprints
• Time Value of Money (TVM): Multi-period discounting, non-annual compounding frequency, complex
perpetuities, and growing annuities. [1]
• Capital Budgeting: Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and
crossover rates under mutually exclusive project constraints. [1]
• Cost of Capital & WACC: Calculating component costs of debt, preferred stock, and common equity
via CAPM and Dividend Growth Models (DGM). [1, 2, 3, 4]
• Valuation & Financial Modeling: Free Cash Flow to the Firm (FCFF), Free Cash Flow to Equity (FCFE),
and Multi-Stage Dividend Discount Models. [1, 2]
• Risk, Return, & Leverage: Capital Asset Pricing Model (CAPM), Beta levering/unlevering formulas
(Hamada Equation), and Modigliani-Miller capital structure theorems. [1]
Core Financial Concept Visualization
The diagram below illustrates the relationship between a firm's leverage, its component costs of capital, and
the Weighted Average Cost of Capital (WACC), highlighting the Optimal Capital Structure point that minimizes
cost and maximizes firm value
,2
1. A firm is evaluating a project with cash flows of -$100,000 at Year 0,
$40,000 at Year 1, $50,000 at Year 2, and $60,000 at Year 3. If the required
rate of return is 10%, what is the Net Present Value (NPV)?
A. $21,432.18
B. $23,215.63
C. $25,110.22
D. $18,443.90
Explanation: NPV = -$100,000 + ($40,.10^1) + ($50,.10^2) +
($60,.10^3) = -$100,000 + $36,363.64 + $41,322.31 + $45,078.89 =
$23,215.63. Since NPV > 0, the project should be accepted.
2. According to the Capital Asset Pricing Model (CAPM), what is the expected
return of a stock with a beta of 1.25, given a risk-free rate of 4% and a market
risk premium of 6%?
A. 9.0%
B. 10.5%
C. 11.5%
D. 12.0% [1, 2, 3, 4]
Explanation: Expected Return = Risk-Free Rate + Beta * (Market Risk Premium)
= 4% + 1.25 * 6% = 4% + 7.5% = 11.5%. [1]
3. A company has outstanding bonds with a 7% coupon rate, paid semi-
annually, and 10 years left to maturity. If the bonds currently sell for $1,050
and have a par value of $1,000, what is the nominal Yield to Maturity (YTM)?
[1]
A. 6.12%
B. 6.31%
C. 6.78%
D. 7.00%
,3
Explanation: Using financial calculator inputs: N = 20, PV = -1050, PMT = 35, FV
= 1000. Solving for I/Y yields 3.153%. The nominal annual YTM is 3.153% * 2 =
6.306%, or approximately 6.31%.
4. Project A and Project B are mutually exclusive. Project A has an NPV of
$10,000 and an IRR of 18%. Project B has an NPV of $12,000 and an IRR of
15%. If the firm's cost of capital is 10%, which project should be selected? [1]
A. Project A, because its IRR is higher.
B. Project B, because its NPV is higher.
C. Neither project, because their IRRs conflict.
D. Both projects, because both NPVs are positive. [1, 2, 3]
Explanation: For mutually exclusive projects, the NPV rule always takes
precedence over the IRR rule because NPV measures absolute wealth creation,
whereas IRR can be distorted by scale and reinvestment rate assumptions. [1, 2,
3, 4]
5. A firm has a capital structure consisting of 40% debt and 60% equity. The
pre-tax cost of debt is 8%, the tax rate is 25%, and the cost of equity is 12%.
What is the firm's Weighted Average Cost of Capital (WACC)? [1, 2, 3, 4, 5]
A. 8.8%
B. 9.6%
C. 10.4%
D. 11.2%
Explanation: WACC = (Weight of Debt * After-tax Cost of Debt) + (Weight of
Equity * Cost of Equity) = [0.40 * 8% * (1 - 0.25)] + [0.60 * 12%] = [0.40 * 6%] +
7.2% = 2.4% + 7.2% = 9.6%. [1, 2]
6. A share of preferred stock pays a constant annual dividend of $4.50. If
investors require an 8% rate of return, what is the current value of the stock?
A. $36.00
B. $50.00
C. $56.25
C. $62.50
, 4
Explanation: Value of Preferred Stock = Dividend / Required Return = $4.50 /
0.08 = $56.25. [1]
7. If a firm increases its debt-to-equity ratio, Modigliani and Miller
Proposition II (without taxes) states that the cost of equity will behave in
which manner? [1, 2]
A. Decrease linearly to offset cheaper debt.
B. Remain completely constant.
C. Increase linearly to offset the added financial risk.
D. Increase exponentially, causing the WACC to rise. [1]
Explanation: MM Proposition II without taxes demonstrates that as a firm adds
cheaper debt, the risk to equity holders increases proportionally, causing the
cost of equity to rise linearly. This leaves the overall WACC unchanged. [1]
8. A stock just paid an annual dividend of $2.00 (D0 = $2.00). Dividends are
expected to grow at a constant rate of 5% per year indefinitely. If the required
return is 11%, what is the intrinsic value of the stock today? [1, 2]
A. $33.33
B. $35.00
C. $35.00
D. $36.75
Explanation: Intrinsic Value = D1 / (r - g) = [D0 * (1 + g)] / (r - g) = [$2.00 * 1.05]
/ (0.11 - 0.05) = $2..06 = $35.00.
9. A company is considering a machine costing $60,000. It will generate
uniform cash inflows of $15,000 per year for 6 years. What is the project's
Payback Period?
A. 3.0 years
B. 4.0 years
C. 4.5 years
D. 5.0 years
Explanation: Payback Period = Initial Investment / Annual Cash Inflow =
$60,000 / $15,000 = 4.0 years. [1]
