FNAN 522 Final Exam Practice QUESTIONS AND ANSWERS 2023 (GRADED A+)

FNAN 522 Final Exam Practice QUESTIONS AND ANSWERS 2023 (GRADED A+) 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. The correct answer is: The internal rate of return can vary throughout the life of a project. Question 5 Correct Mark 1.00 out of 1.00 Question 6 Correct Mark 1.00 out of 1.00 Question 7 Correct Mark 1.00 out of 1.00 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 The correct answer is: $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. The correct answer is: 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. The correct answer is: All of these answers. Question 8 Incorrect Mark 0.00 out of 1.00 Question 9 Incorrect Mark 0.00 out of 1.00 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. The correct answer is: 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. c. Payback period method. d. Internal Rate of Return and Net Present Value. The correct answer is: Modified Internal Rate of Return and Net Present Value. Question 10 Correct Mark 1.00 out of 1.00 Question 11 Correct Mark 1.00 out of 1.00 Question 12 Correct Mark 1.00 out of 1.00 Under the present value concept, a lottery winner would rather receive: Select one: a. $10,000 per year for the next 5 years than receive $30,000 today. b. $10,000 per year for the next 5 years than receive $40,000 today. c. It is not clear which of these is preferable. The best answer depends on the interest rate that the lottery winner faces. d. $10,000 per year for the next 5 years than receive $50,000 today. The correct answer is: It is not clear which of these is preferable. The best answer depends on the interest rate that the lottery winner faces. The marginal tax rate is: Select one: a. The tax rate incurred on each additional dollar of income. b. A firm's tax payment divided by taxable income. c. The average tax rate the firm pays on taxable income. d. The tax rate that applies to interest expense. The correct answer is: The tax rate incurred on each additional dollar of income. A company sells 150,000 units at $60 a unit with a variable cost of $30 a unit. It has $1 million in fixed costs and $600,000 in interest costs. What is the company's operating leverage? Select one: a. 1.29 b. 1.55 c. 1.15 d. 1.21 The correct answer is: 1.29 Question 13 Correct Mark 1.00 out of 1.00 Question 14 Correct Mark 1.00 out of 1.00 Question 15 Correct Mark 1.00 out of 1.00 An individual files for bankruptcy. Through this proceeding, the debtor reorganizes his debt, is allowed to keep some of his property, but must use some of his future earnings to pay off his debts. What type of bankruptcy is this? Select one: a. Chapter 11. b. Chapter 7. c. Chapter 13. d. Chapter 9. The correct answer is: Chapter 13. If potential creditors and investors sense that a company has a higher risk of going bankrupt, which of the following will occur? Select one: a. All of these answers. b. More lenders will want to lend money to the company due to the higher expected rate of return. c. The company will be charged a higher interest rate by potential lenders. d. Companies will have to sell more of their shares at a higher price. The correct answer is: The company will be charged a higher interest rate by potential lenders. Under the Pecking Order Theory, what is the order of funding sources to finance a project from the most preferred method to least desirable? Select one: a. Use capital reserves; sell equity; issue debt. b. Issue debt; use capital reserves; sell equity. c. Issue debt; sell equity; use capital reserves. d. Use capital reserves; issue debt; sell equity. The correct answer is: Use capital reserves; issue debt