FNAN 522 - FINAL EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Which of the following statements regarding the cash conversion cycle (CCC) is correct? Select one:
a. All of these answers.
b. Rising cash conversion cycle often indicates deterioration in cash flows, while declining cash
conversion cycle generally signals improving cash flows.
c. The cash conversion cycle is written to analyze firms that conducts its business solely using cash.
d. The cash conversion cycle is directly observed from a business's cash flows. - Answers b. Rising
cash conversion cycle often indicates deterioration in cash flows, while declining cash conversion
cycle generally signals improving cash flows.
Which of the following statements correctly states a risk associated with inventory management?
Select one:
a. All of these answers.
b. Excessive inventory limits the company's growth potential.
c. Managing inventory is complicated due to factors like inflation and seasonality.
d. Inadequate inventory will result insufficient materials for production. - Answers a. All of these
answers.
Which of the following is the primary purpose of inventory management? Select one:
a. To improve cash flows to a company's vendors.
b. To monitor the amount of material into and out of stockroom locations.
c. To ensure that customers get their product while minimizing inventory costs for the company.
d. To establish production goals. - Answers c. To ensure that customers get their product while
minimizing inventory costs for the company.
Which of the following is a reason to always have cash on hand?
Select one:
a. It increases a company's liquidity.
b. It can be used immediately to perform economic actions, such as paying outstanding debts.
c. All of these answers.
d. It allows the company to meet its obligations without incurring avoidable losses. - Answers c. All of
these answers.
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. Select one:
a. $190,476
b. $358,708
c. $158,709
d. $193,204 - Answers c. $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.
Select one:
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Answers d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? Select one:
, 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. - Answers d. To compare two
investments that have different durations.
Under the internal rate of return rule in capital budgeting, which of the following statements CANNOT
be true? Select one:
a. The internal rate of return can vary throughout the life of a project.
b. The internal rate of return can be equal to the cost of capital.
c. The cash inflows can be estimates.
d. The initial investment can be the cost from purchasing new equipment. - Answers a. 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?
Select one:
a. $12.6 million
b. $16.8 million
c. $5.6 million
d. $23.4 million - Answers a. $12.6 million
Which of the following could be a sunk cost?
Select one:
a. All of these answers.
b. A feasibility study that attempted to determine the economic viability of
a project.
c. Labor hours spent on planning project.
d. Equipment purchased to pursue a project. - Answers a. All of these answers.
Which of the following is an example of an opportunity cost?
Select one:
a. If you watch a game instead of going for a run, the cost is poorer
personal health.
b. All of these answers.
c. If you buy a candy bar instead of a soda, the cost is thirst.
d. If invest in one of two projects, the cost is the lost revenue from the other project. - Answers b. All
of these answers
Which of the following is the best reason to use the payback method to evaluate investments?
Select one:
a. The payback method covers all cash inflows and outflows for the
duration of the investment.
b. The payback method adjusts for the project's riskiness.
c. The payback method is easy to use and understand for most people, regardless of training.
d. If you use the payback method, you do not need to perform additional analyses. - Answers c. The
payback method is easy to use and understand for most people, regardless of training.
You are analyzing two different investments and will present your findings to company executives.
Both projects have cash flows that alternate between positive and negative. Which budgeting method
should you use to evaluate the projects?
Select one:
a. Modified Internal Rate of Return and Net Present Value.
b. Any of these choices are appropriate.
Which of the following statements regarding the cash conversion cycle (CCC) is correct? Select one:
a. All of these answers.
b. Rising cash conversion cycle often indicates deterioration in cash flows, while declining cash
conversion cycle generally signals improving cash flows.
c. The cash conversion cycle is written to analyze firms that conducts its business solely using cash.
d. The cash conversion cycle is directly observed from a business's cash flows. - Answers b. Rising
cash conversion cycle often indicates deterioration in cash flows, while declining cash conversion
cycle generally signals improving cash flows.
Which of the following statements correctly states a risk associated with inventory management?
Select one:
a. All of these answers.
b. Excessive inventory limits the company's growth potential.
c. Managing inventory is complicated due to factors like inflation and seasonality.
d. Inadequate inventory will result insufficient materials for production. - Answers a. All of these
answers.
Which of the following is the primary purpose of inventory management? Select one:
a. To improve cash flows to a company's vendors.
b. To monitor the amount of material into and out of stockroom locations.
c. To ensure that customers get their product while minimizing inventory costs for the company.
d. To establish production goals. - Answers c. To ensure that customers get their product while
minimizing inventory costs for the company.
Which of the following is a reason to always have cash on hand?
Select one:
a. It increases a company's liquidity.
b. It can be used immediately to perform economic actions, such as paying outstanding debts.
c. All of these answers.
d. It allows the company to meet its obligations without incurring avoidable losses. - Answers c. All of
these answers.
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. Select one:
a. $190,476
b. $358,708
c. $158,709
d. $193,204 - Answers c. $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.
Select one:
a. 5.0%
b. 6.21%
c. 7.56%
d. 2.21% - Answers d. 2.21%
In which of the following situations would it be appropriate to use the IRR method to make an
investment decision? Select one:
, 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. - Answers d. To compare two
investments that have different durations.
Under the internal rate of return rule in capital budgeting, which of the following statements CANNOT
be true? Select one:
a. The internal rate of return can vary throughout the life of a project.
b. The internal rate of return can be equal to the cost of capital.
c. The cash inflows can be estimates.
d. The initial investment can be the cost from purchasing new equipment. - Answers a. 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?
Select one:
a. $12.6 million
b. $16.8 million
c. $5.6 million
d. $23.4 million - Answers a. $12.6 million
Which of the following could be a sunk cost?
Select one:
a. All of these answers.
b. A feasibility study that attempted to determine the economic viability of
a project.
c. Labor hours spent on planning project.
d. Equipment purchased to pursue a project. - Answers a. All of these answers.
Which of the following is an example of an opportunity cost?
Select one:
a. If you watch a game instead of going for a run, the cost is poorer
personal health.
b. All of these answers.
c. If you buy a candy bar instead of a soda, the cost is thirst.
d. If invest in one of two projects, the cost is the lost revenue from the other project. - Answers b. All
of these answers
Which of the following is the best reason to use the payback method to evaluate investments?
Select one:
a. The payback method covers all cash inflows and outflows for the
duration of the investment.
b. The payback method adjusts for the project's riskiness.
c. The payback method is easy to use and understand for most people, regardless of training.
d. If you use the payback method, you do not need to perform additional analyses. - Answers c. The
payback method is easy to use and understand for most people, regardless of training.
You are analyzing two different investments and will present your findings to company executives.
Both projects have cash flows that alternate between positive and negative. Which budgeting method
should you use to evaluate the projects?
Select one:
a. Modified Internal Rate of Return and Net Present Value.
b. Any of these choices are appropriate.
