FIN 300 WEEK 07 COMPREHENSIVE
EXAM - CORPORATE FINANCE AND
VALUATION | QUESTIONS AND
ANSWERS |2026/2027 UPDATE | JUST
RELEASED
1. If a project has an NPV of zero, which of the following must be true?
A. The project’s internal rate of return is zero.
B. The project’s profitability index is zero.
C. The project’s IRR equals the required rate of return.
D. The project should be rejected immediately.
Answer: C
Conceptual Explanation: When NPV is zero, the present value of cash inflows exactly
equals the initial investment, meaning the discount rate used (required rate) is exactly
equal to the IRR.
2. Which of the following is considered a systematic risk?
A. A labor strike within a specific company.
B. A sudden increase in the corporate tax rate.
C. A CEO resigning due to a scandal.
,D. Failure of a new product line.
Answer: B
Conceptual Explanation: Systematic risk affects the entire market. Changes in tax rates,
interest rates, or inflation are market-wide factors, whereas the others are firm-specific
(unsystematic).
3. In the context of the Capital Asset Pricing Model (CAPM), what does Beta represent?
A. The total risk of an individual security.
B. The sensitivity of a security’s returns to market movements.
C. The standard deviation of the market portfolio.
D. The risk-free rate of return minus inflation.
Answer: B
Conceptual Explanation: Beta measures the systematic risk of an asset, indicating how
much the asset’s price moves relative to the overall market.
4. When calculating the Weighted Average Cost of Capital (WACC), why is the cost of debt
adjusted for taxes?
A. Equity dividends are also tax-deductible.
B. To increase the final WACC value for conservative estimation.
C. Interest expense is tax-deductible, reducing the effective cost.
D. Government regulations require the inclusion of tax shields in all ratios.
, Answer: C
Conceptual Explanation: Because interest payments are tax-deductible, the government
effectively pays a portion of the interest, making the after-tax cost of debt: Pre-tax cost * (1
- Tax Rate).
5. Which capital budgeting method is most prone to the ‘multiple rates of return’ problem?
A. Internal Rate of Return (IRR)
B. Profitability Index (PI)
C. Payback Period
D. Net Present Value (NPV)
Answer: A
Conceptual Explanation: If a project has non-conventional cash flows (cash flow signs
change more than once), the IRR equation can have multiple mathematical solutions.
6. If a company increases its use of debt financing while keeping total assets constant, what
usually happens to the equity beta?
A. Equity beta decreases.
B. Equity beta remains unchanged.
C. Equity beta becomes zero.
D. Equity beta increases.
Answer: D
EXAM - CORPORATE FINANCE AND
VALUATION | QUESTIONS AND
ANSWERS |2026/2027 UPDATE | JUST
RELEASED
1. If a project has an NPV of zero, which of the following must be true?
A. The project’s internal rate of return is zero.
B. The project’s profitability index is zero.
C. The project’s IRR equals the required rate of return.
D. The project should be rejected immediately.
Answer: C
Conceptual Explanation: When NPV is zero, the present value of cash inflows exactly
equals the initial investment, meaning the discount rate used (required rate) is exactly
equal to the IRR.
2. Which of the following is considered a systematic risk?
A. A labor strike within a specific company.
B. A sudden increase in the corporate tax rate.
C. A CEO resigning due to a scandal.
,D. Failure of a new product line.
Answer: B
Conceptual Explanation: Systematic risk affects the entire market. Changes in tax rates,
interest rates, or inflation are market-wide factors, whereas the others are firm-specific
(unsystematic).
3. In the context of the Capital Asset Pricing Model (CAPM), what does Beta represent?
A. The total risk of an individual security.
B. The sensitivity of a security’s returns to market movements.
C. The standard deviation of the market portfolio.
D. The risk-free rate of return minus inflation.
Answer: B
Conceptual Explanation: Beta measures the systematic risk of an asset, indicating how
much the asset’s price moves relative to the overall market.
4. When calculating the Weighted Average Cost of Capital (WACC), why is the cost of debt
adjusted for taxes?
A. Equity dividends are also tax-deductible.
B. To increase the final WACC value for conservative estimation.
C. Interest expense is tax-deductible, reducing the effective cost.
D. Government regulations require the inclusion of tax shields in all ratios.
, Answer: C
Conceptual Explanation: Because interest payments are tax-deductible, the government
effectively pays a portion of the interest, making the after-tax cost of debt: Pre-tax cost * (1
- Tax Rate).
5. Which capital budgeting method is most prone to the ‘multiple rates of return’ problem?
A. Internal Rate of Return (IRR)
B. Profitability Index (PI)
C. Payback Period
D. Net Present Value (NPV)
Answer: A
Conceptual Explanation: If a project has non-conventional cash flows (cash flow signs
change more than once), the IRR equation can have multiple mathematical solutions.
6. If a company increases its use of debt financing while keeping total assets constant, what
usually happens to the equity beta?
A. Equity beta decreases.
B. Equity beta remains unchanged.
C. Equity beta becomes zero.
D. Equity beta increases.
Answer: D
