1 | Page
FINC 5310- FINAL EXAM Questions and
Answers
The weighted average cost of capital for a firm is the:
Selected
A. rate of return that the firm's preferred stockholders should
expect to earn over the long term.
B. rate the firm should expect to pay on its next bond issue.
C. discount rate which the firm should apply to all of the projects
it
undertakes.
D. overall rate which the firm must earn on its existing assets to
maintain its value.
E. maximum rate which the firm should require on any projects it
undertakes.
Ans: D. overall rate which the firm must earn on its existing assets to
maintain its value.
For a multi-product firm, if a project's level of risk differs from
that of the
overall firm, then the:
A. project should be discounted at the market rate.
B. project should be discounted at the T-bill rate.
C. project should be discounted using the overall firm's beta.
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, 2 | Page
D. project should be discounted using a beta commensurate with
the project's risks.
E. CAPM can no longer be used to estimate the cost of equity as
beta no longer applies.
Ans: D. project should be discounted using a beta commensurate with
the project's risks.
The accounting break-even production quantity for a project is
5,799 units.
The fixed costs are $92,640, the depreciation is $36,210, and the
sales price
per unit is $48.29. What is the variable cost per unit?
A. $32.81
B. $27.04
C. $26.07
D. $33.04
E. $31.18
Ans: C. $26.07
5,799 = ($92,640 + 36,210) / ($48.29 - Variable cost per
unit)
Variable cost per unit = $26.07
All else held constant, which one of these is most apt to increase
the WACC
of a leveraged firm?
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A. an increase in the weight of debt
B. a decrease in the tax rate
C. a decrease in the dividend growth rate
D. a decrease in a firm's equity beta
E. an increase in the risk-free rate when the equity beta >
1
Ans: B. a decrease in the tax rate
An analysis of what happens to the estimate of a project's net
present value
when you examine a vast number of different likely economic
situations is
called _____ analysis.
A. sensitivity
B. simulation
C. break-even
D. scenario
E. forecasting
Ans: B. simulation
A proposed new venture will cost $175,000 and should produce
annual cash
flows of $48,500, $85,000, $40,000, and $40,000 for Years 1 to 4,
respectively. The required payback period and discounted payback
period is
3 years. The discount rate is 9 percent. Which methods indicate
project
acceptance and which indicate project rejection?
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A. accept: NPV, IRR; reject: PI, payback, discounted payback
B. accept: payback, discounted payback; reject: NPV, IRR, PI
C. accept: NPV, IRR, PI, payback; reject: discounted payback
D. accept: NPV, IRR, PI; reject: payback, discounted payback
E. accept: payback, PI; reject: NPV, IRR, discounted payback
Ans: D. accept: NPV, IRR, PI; reject: payback, discounted payback
Hu's has 25,000 shares of common stock outstanding with a beta
of 1.4, a
market price of $32 a share, and a dividend yield of 5.7 percent.
Dividends
increase by 4.2 percent annually. The firm also has $450,000 of
debt
outstanding that is selling at 102 percent of par that has a yield to
maturity of
6.8 percent. The tax rate is 35 percent. The firm is considering a
project that
has the same risk level as the firm's current operations, an initial
cost of
$328,000 and cash inflows of $52,500, $155,000, and $225,000 for
Years 1
to 3, respectively. What is the NPV of the project?
A. $61,492
B. $48,515
C. $57,006
D. $46,511
E. $32,899
© 2025 All rights reserved
FINC 5310- FINAL EXAM Questions and
Answers
The weighted average cost of capital for a firm is the:
Selected
A. rate of return that the firm's preferred stockholders should
expect to earn over the long term.
B. rate the firm should expect to pay on its next bond issue.
C. discount rate which the firm should apply to all of the projects
it
undertakes.
D. overall rate which the firm must earn on its existing assets to
maintain its value.
E. maximum rate which the firm should require on any projects it
undertakes.
Ans: D. overall rate which the firm must earn on its existing assets to
maintain its value.
For a multi-product firm, if a project's level of risk differs from
that of the
overall firm, then the:
A. project should be discounted at the market rate.
B. project should be discounted at the T-bill rate.
C. project should be discounted using the overall firm's beta.
© 2025 All rights reserved
, 2 | Page
D. project should be discounted using a beta commensurate with
the project's risks.
E. CAPM can no longer be used to estimate the cost of equity as
beta no longer applies.
Ans: D. project should be discounted using a beta commensurate with
the project's risks.
The accounting break-even production quantity for a project is
5,799 units.
The fixed costs are $92,640, the depreciation is $36,210, and the
sales price
per unit is $48.29. What is the variable cost per unit?
A. $32.81
B. $27.04
C. $26.07
D. $33.04
E. $31.18
Ans: C. $26.07
5,799 = ($92,640 + 36,210) / ($48.29 - Variable cost per
unit)
Variable cost per unit = $26.07
All else held constant, which one of these is most apt to increase
the WACC
of a leveraged firm?
© 2025 All rights reserved
, 3 | Page
A. an increase in the weight of debt
B. a decrease in the tax rate
C. a decrease in the dividend growth rate
D. a decrease in a firm's equity beta
E. an increase in the risk-free rate when the equity beta >
1
Ans: B. a decrease in the tax rate
An analysis of what happens to the estimate of a project's net
present value
when you examine a vast number of different likely economic
situations is
called _____ analysis.
A. sensitivity
B. simulation
C. break-even
D. scenario
E. forecasting
Ans: B. simulation
A proposed new venture will cost $175,000 and should produce
annual cash
flows of $48,500, $85,000, $40,000, and $40,000 for Years 1 to 4,
respectively. The required payback period and discounted payback
period is
3 years. The discount rate is 9 percent. Which methods indicate
project
acceptance and which indicate project rejection?
© 2025 All rights reserved
, 4 | Page
A. accept: NPV, IRR; reject: PI, payback, discounted payback
B. accept: payback, discounted payback; reject: NPV, IRR, PI
C. accept: NPV, IRR, PI, payback; reject: discounted payback
D. accept: NPV, IRR, PI; reject: payback, discounted payback
E. accept: payback, PI; reject: NPV, IRR, discounted payback
Ans: D. accept: NPV, IRR, PI; reject: payback, discounted payback
Hu's has 25,000 shares of common stock outstanding with a beta
of 1.4, a
market price of $32 a share, and a dividend yield of 5.7 percent.
Dividends
increase by 4.2 percent annually. The firm also has $450,000 of
debt
outstanding that is selling at 102 percent of par that has a yield to
maturity of
6.8 percent. The tax rate is 35 percent. The firm is considering a
project that
has the same risk level as the firm's current operations, an initial
cost of
$328,000 and cash inflows of $52,500, $155,000, and $225,000 for
Years 1
to 3, respectively. What is the NPV of the project?
A. $61,492
B. $48,515
C. $57,006
D. $46,511
E. $32,899
© 2025 All rights reserved
