age 1 of 209
FINA 53201 EXAM STUDY GUIDE 2025/2026
COMPLETE QUESTIONS WITH CORRECT DETAILED
ANSWERS || 100% GUARANTEED PASS <BRAND
NEW VERSION>
The required return is 8.7 percent. What is the profitability
index for this project? .....Answer.......PI = [$147,400/(1 + .087)
+ $164,900/(1 + .087)2 + $130,000/(1 +
.087)3]/$243,000PI = 1.549
Project A is opening a bakery at 10 Center Street. Project B is
opening a specialty coffee shop at the same address. Both
projects have unconventional cash flows, that is, both projects
have positive and negative cash flows that occur following the
initial investment. When trying to decide which project to accept,
given sufficient funding to accept either project, you should rely
,age 2 of 209
most heavily on the _____ method of analysis. .....Answer.......net
present value
The changes in a firm's future cash flows that are a direct
consequence of accepting a project are called _____ cash flows.
.....Answer.......incremental
Toni's Tools is comparing machines to determine which one to
purchase. The machines sell for differing prices, have differing
operating costs, differing machine lives, and will be replaced
when worn out. These machines should be compared using:
.....Answer.......their equivalent annual costs.
Rock Haven has a proposed project that will generate sales of
1,890 units annually at a selling price of $34 each. The fixed
costs are $18,900 and the variable costs per unit are $10.75.
The project requires $35,200 of fixed assets that will be
,age 3 of 209
depreciated on a straight-line basis to a zero book value over
the 4-year life of the project. The salvage value of the fixed
assets is $9,300 and the tax rate is 34 percent. What is the
operating cash flow? .....Answer.......OCF = [1,890($34 − 10.75)
− $18,900](1 − .34) + .34($35,200/4)OCF = $19,520
Pear Orchards is evaluating a new project that will require
equipment of $215,000. The equipment will be depreciated on
a 5-year MACRS schedule. The annual depreciation percentages
are 20.00 percent, 32.00 percent, 19.20 percent, 11.52
percent, and 11.52 percent, respectively. The company plans to
shut down the project after 4 years. At that time, the equipment
could be sold for $45,000. However, the company plans to
keep the equipment for a different project in another state. The
tax rate is 39 percent. What aftertax salvage value should the
company use when evaluating the current project?
, age 4 of 209
.....Answer.......Book value = $215,000 − 215,000(.2000 +
.3200 + .1920 + .1152)
Book value = $37,152
Tax refund (due) = ($37,152 − 45,000)(.39)
Tax refund (due) = −$3,061
Aftertax salvage value = 45,000 − 3,061
Aftertax salvage value = $41,939
Bruno's Lunch Counter is expanding and expects operating cash
flows of $25,600 a year for 5 years as a result. This expansion
requires $69,000 in new fixed assets. These assets will be
worthless at the end of the project. In addition, the project
requires $5,800 of net working capital throughout the life of the
project. What is the net present value of this expansion project
FINA 53201 EXAM STUDY GUIDE 2025/2026
COMPLETE QUESTIONS WITH CORRECT DETAILED
ANSWERS || 100% GUARANTEED PASS <BRAND
NEW VERSION>
The required return is 8.7 percent. What is the profitability
index for this project? .....Answer.......PI = [$147,400/(1 + .087)
+ $164,900/(1 + .087)2 + $130,000/(1 +
.087)3]/$243,000PI = 1.549
Project A is opening a bakery at 10 Center Street. Project B is
opening a specialty coffee shop at the same address. Both
projects have unconventional cash flows, that is, both projects
have positive and negative cash flows that occur following the
initial investment. When trying to decide which project to accept,
given sufficient funding to accept either project, you should rely
,age 2 of 209
most heavily on the _____ method of analysis. .....Answer.......net
present value
The changes in a firm's future cash flows that are a direct
consequence of accepting a project are called _____ cash flows.
.....Answer.......incremental
Toni's Tools is comparing machines to determine which one to
purchase. The machines sell for differing prices, have differing
operating costs, differing machine lives, and will be replaced
when worn out. These machines should be compared using:
.....Answer.......their equivalent annual costs.
Rock Haven has a proposed project that will generate sales of
1,890 units annually at a selling price of $34 each. The fixed
costs are $18,900 and the variable costs per unit are $10.75.
The project requires $35,200 of fixed assets that will be
,age 3 of 209
depreciated on a straight-line basis to a zero book value over
the 4-year life of the project. The salvage value of the fixed
assets is $9,300 and the tax rate is 34 percent. What is the
operating cash flow? .....Answer.......OCF = [1,890($34 − 10.75)
− $18,900](1 − .34) + .34($35,200/4)OCF = $19,520
Pear Orchards is evaluating a new project that will require
equipment of $215,000. The equipment will be depreciated on
a 5-year MACRS schedule. The annual depreciation percentages
are 20.00 percent, 32.00 percent, 19.20 percent, 11.52
percent, and 11.52 percent, respectively. The company plans to
shut down the project after 4 years. At that time, the equipment
could be sold for $45,000. However, the company plans to
keep the equipment for a different project in another state. The
tax rate is 39 percent. What aftertax salvage value should the
company use when evaluating the current project?
, age 4 of 209
.....Answer.......Book value = $215,000 − 215,000(.2000 +
.3200 + .1920 + .1152)
Book value = $37,152
Tax refund (due) = ($37,152 − 45,000)(.39)
Tax refund (due) = −$3,061
Aftertax salvage value = 45,000 − 3,061
Aftertax salvage value = $41,939
Bruno's Lunch Counter is expanding and expects operating cash
flows of $25,600 a year for 5 years as a result. This expansion
requires $69,000 in new fixed assets. These assets will be
worthless at the end of the project. In addition, the project
requires $5,800 of net working capital throughout the life of the
project. What is the net present value of this expansion project
