FIN3601 FINAL STUDY GUIDE EXAM
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Net present Value
(NPV) - ANS difference between an investment's
market value and its cost
(DCF) Discounted Cash flow variation - ANS the process of valuing
an investment by discounting its future cash flows
Payback Rule - ANS how long it takes for an investment's cash inflows to equal the initial
investment
Payback rule Cons - ANS Time value of money is completely ignored.
Payback rule fails to consider any risk differences.
No economic rationale for looking at payback in the first place, so we have no guide for how to
pick the cutoff
Payback rule pros - ANS biased toward liquidity
adjusts for the extra riskiness of later cash flows by ignoring them altogether
Many decisions do not warrant detailed analysis
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Net present Value
(NPV) - ANS difference between an investment's
market value and its cost
(DCF) Discounted Cash flow variation - ANS the process of valuing
an investment by discounting its future cash flows
Payback Rule - ANS how long it takes for an investment's cash inflows to equal the initial
investment
Payback rule Cons - ANS Time value of money is completely ignored.
Payback rule fails to consider any risk differences.
No economic rationale for looking at payback in the first place, so we have no guide for how to
pick the cutoff
Payback rule pros - ANS biased toward liquidity
adjusts for the extra riskiness of later cash flows by ignoring them altogether
Many decisions do not warrant detailed analysis
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
