CFM - Exam 3 – Brune 2025 Questions
and Answers
What is the purpose of the corporation? - ANSWER✔✔-to make money for the shareholder
Capital budgeting is the summary of ? (2) - ANSWER✔✔-planned investments and long term assets
When is an investment considered long term? - ANSWER✔✔-longer than 1 year
What are incremental cash flows? - ANSWER✔✔-the cash flows that occur only if the project is
selected
T/F we will do the investment if the cost is more than the return
T/F we use techniques to analyze expected cash flows
T/F we only consider incremental cash flows - ANSWER✔✔-false
true
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 1
, true
________________ is the time required to recover the initial investment - ANSWER✔✔-payback
Payback is easy to understand and frequently used, but ? - ANSWER✔✔-it's not optimal because it
does not consider TVM for cash flows beyond the cutoff
Payback is biased towards (short term/long term)? - ANSWER✔✔-short term - emphasized
liquidity
When do we accept project based on using payback? - ANSWER✔✔-if it is less than the cutoff
period
discounted payback means cash flows are discounted at the ____________. Meaning it does
consider the TVM of money. Therefore, it regards cash flows _____________ the cutoff period
more than regular payback. - ANSWER✔✔-WACC, beyond (it's more long term than regular
payback)
Net present value is the ? - ANSWER✔✔-PV of expected cash flow of an investment
What is used as the discount rate for NPV? - ANSWER✔✔-Wacc
When do we accept a project doing NPV? - ANSWER✔✔-if the NPV is greater than zero (if it's a
positive number)
the IRR comes out as an (percentage/number)? - ANSWER✔✔-percentage
IRR is the ? - ANSWER✔✔-return generated from est cash flows
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 2
and Answers
What is the purpose of the corporation? - ANSWER✔✔-to make money for the shareholder
Capital budgeting is the summary of ? (2) - ANSWER✔✔-planned investments and long term assets
When is an investment considered long term? - ANSWER✔✔-longer than 1 year
What are incremental cash flows? - ANSWER✔✔-the cash flows that occur only if the project is
selected
T/F we will do the investment if the cost is more than the return
T/F we use techniques to analyze expected cash flows
T/F we only consider incremental cash flows - ANSWER✔✔-false
true
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 1
, true
________________ is the time required to recover the initial investment - ANSWER✔✔-payback
Payback is easy to understand and frequently used, but ? - ANSWER✔✔-it's not optimal because it
does not consider TVM for cash flows beyond the cutoff
Payback is biased towards (short term/long term)? - ANSWER✔✔-short term - emphasized
liquidity
When do we accept project based on using payback? - ANSWER✔✔-if it is less than the cutoff
period
discounted payback means cash flows are discounted at the ____________. Meaning it does
consider the TVM of money. Therefore, it regards cash flows _____________ the cutoff period
more than regular payback. - ANSWER✔✔-WACC, beyond (it's more long term than regular
payback)
Net present value is the ? - ANSWER✔✔-PV of expected cash flow of an investment
What is used as the discount rate for NPV? - ANSWER✔✔-Wacc
When do we accept a project doing NPV? - ANSWER✔✔-if the NPV is greater than zero (if it's a
positive number)
the IRR comes out as an (percentage/number)? - ANSWER✔✔-percentage
IRR is the ? - ANSWER✔✔-return generated from est cash flows
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 2
