FNAN 522 Final Exam Review – Complete Finance Study Guide &
Practice Test (2026)
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year after
the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the initial
investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of the year.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - correct answer ✔✔d. $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn $25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - correct answer ✔✔d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
, c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - correct answer ✔✔a. To
compare two projects that have an equal initial investment and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true?
a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - correct answer ✔✔c. The
internal rate of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this project
is 15.3%. You are still negotiating the purchase price of the equipment. What is the most you
can pay for the equipment and still have a positive NPV?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - correct answer ✔✔d. $12.6 million
Which of the following could be a sunk cost?
a. A feasibility study that attempted to determine the economic viability of a project.
b. All of these answers.
c. Labor hours spent on planning project.
Practice Test (2026)
A company is considering a project that has a discount rate of 5%. It will require an initial
investment of $200,000. In the first year, it will have $100,000 in net cash inflows (one year after
the initial investment). In year 2, it will have cash inflows of $100,000 (two years after the initial
investment), and in year 3 the project will generate $200,000 (three years after the initial
investment). What is the project's NPV? Assume all cash flows occur at the end of the year.
a. $190,476
b. $193,204
c. $358,708
d. $158,709 - correct answer ✔✔d. $158,709
A project has an initial investment requirement of $100,000. In year 1, it should earn $25,000; in
year two, $30,000; and in year 3, $50,000. What is the project's internal rate of return? Assume
the cash flows in years one, two, and three happen at the end of the year.
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - correct answer ✔✔d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision?
a. To compare two projects that have an equal initial investment and lifespan.
b. All of these answers.
, c. To assess a project which cash flows fluctuate between positive and negative.
d. To compare two investments that have different durations. - correct answer ✔✔a. To
compare two projects that have an equal initial investment and lifespan.
Under the internal rate of return rule in capital budgeting, which of the following statements
CANNOT be true?
a. The initial investment can be the cost from purchasing new equipment.
b. The cash inflows can be estimates.
c. The internal rate of return can vary throughout the life of a project.
d. The internal rate of return can be equal to the cost of capital. - correct answer ✔✔c. The
internal rate of return can vary throughout the life of a project.
You have just been offered a contract worth $5.6 million per year for 3 years. However, to take
the contract, you will need to purchase some new equipment. Your discount rate for this project
is 15.3%. You are still negotiating the purchase price of the equipment. What is the most you
can pay for the equipment and still have a positive NPV?
a. $5.6 million
b. $16.8 million
c. $23.4 million
d. $12.6 million - correct answer ✔✔d. $12.6 million
Which of the following could be a sunk cost?
a. A feasibility study that attempted to determine the economic viability of a project.
b. All of these answers.
c. Labor hours spent on planning project.
