FNAN 522 Final Exam ACTUAL UPDATED QUESTIONS AND CORRECT ANSWERS
C
Terms in this set (40)
A company is considering a project that has a discount d. $158,709
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
A project has an initial investment requirement of d. 2.21%
$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%
In which of the following situations would it be a. To compare two projects that have an equal initial investment and lifespan.
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.
, Under the internal rate of return rule in capital budgeting, c. The internal rate of return can vary throughout the life of a project.
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.
You have just been offered a contract worth $5.6 million d. $12.6 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
Which of the following could be a sunk cost? b. All of these answers.
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.
d. Equipment purchased to pursue a project.
Which of the following is an example of an opportunity c. All of these answers.
cost?
a. If invest in one of two projects, the cost is the lost
revenue from the other project.
b. If you buy a candy bar instead of a soda, the cost is
thirst.
c. All of these answers.
d. If you watch a game instead of going for a run, the
cost is poorer personal health.
Which of the following is the best reason to use the c. The payback method is easy to use and understand for most people, regardless
payback method to evaluate investments? of training.
Select one:
a. The payback method covers all cash inflows and
outflows for the duration of the investment.
b. If you use the payback method, you do not need to
perform additional analyses.
c. The payback method is easy to use and understand for
most people, regardless of training.
d. The payback method adjusts for the project's riskiness.
C
Terms in this set (40)
A company is considering a project that has a discount d. $158,709
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
A project has an initial investment requirement of d. 2.21%
$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%
In which of the following situations would it be a. To compare two projects that have an equal initial investment and lifespan.
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.
, Under the internal rate of return rule in capital budgeting, c. The internal rate of return can vary throughout the life of a project.
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.
You have just been offered a contract worth $5.6 million d. $12.6 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
Which of the following could be a sunk cost? b. All of these answers.
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.
d. Equipment purchased to pursue a project.
Which of the following is an example of an opportunity c. All of these answers.
cost?
a. If invest in one of two projects, the cost is the lost
revenue from the other project.
b. If you buy a candy bar instead of a soda, the cost is
thirst.
c. All of these answers.
d. If you watch a game instead of going for a run, the
cost is poorer personal health.
Which of the following is the best reason to use the c. The payback method is easy to use and understand for most people, regardless
payback method to evaluate investments? of training.
Select one:
a. The payback method covers all cash inflows and
outflows for the duration of the investment.
b. If you use the payback method, you do not need to
perform additional analyses.
c. The payback method is easy to use and understand for
most people, regardless of training.
d. The payback method adjusts for the project's riskiness.
