Corporate Finance & Capital Valuation:
2026 Prep Pack
Investment Analysis, DCF & Financial Strategy (100 Questions)
1. What does "NPV" (Net Present Value) measure in capital budgeting?
A) The total revenue of a project
B) The difference between the present value of cash inflows and the present value of cash
outflows
C) The amount of time it takes to recover the initial investment
D) The accounting profit of a project
Correct Answer: B) The difference between the present value of cash inflows and the
present value of cash outflows
2. A project should generally be accepted if its NPV is:
A) Negative
B) Exactly zero
C) Positive
D) Less than the initial investment
Correct Answer: C) Positive
3. What is the "IRR" (Internal Rate of Return)?
A) The interest rate the bank charges
B) The discount rate that makes the NPV of a project equal to zero
C) The inflation rate over the project's life
D) The required rate of return by shareholders
Correct Answer: B) The discount rate that makes the NPV of a project equal to zero
4. When NPV and IRR give conflicting decisions for mutually exclusive projects, which
metric should you trust?
A) IRR, because it is a percentage
B) NPV, because it measures the absolute increase in wealth/value
C) Neither, you should use the Payback Period
D) It depends on the CEO's preference
Correct Answer: B) NPV, because it measures the absolute increase in wealth/value
5. What is the "Payback Period"?
A) The time required for an investment to generate cash flows sufficient to recover its initial cost
,B) The total lifespan of the project
C) The time it takes to pay off a bank loan
D) The time until the company goes public
Correct Answer: A) The time required for an investment to generate cash flows sufficient
to recover its initial cost
6. A major flaw of the traditional Payback Period is that it:
A) Is too complicated to calculate
B) Ignores the time value of money and cash flows occurring after the payback period
C) Always gives the same answer as NPV
D) Requires knowing the exact cost of capital
Correct Answer: B) Ignores the time value of money and cash flows occurring after the
payback period
7. "Sunk Costs" are costs that:
A) Will be paid in the future
B) Have already been incurred and cannot be recovered, so they should be ignored in capital
budgeting
C) Are the most important costs to include in NPV
D) Change depending on the project's success
Correct Answer: B) Have already been incurred and cannot be recovered, so they should
be ignored in capital budgeting
8. In capital budgeting, "Opportunity Cost" is:
A) The cost of hiring new employees
B) The potential benefit lost by choosing one alternative over another
C) The tax paid on profits
D) A sunk cost
Correct Answer: B) The potential benefit lost by choosing one alternative over another
9. "Cannibalization" in capital budgeting occurs when:
A) A company buys out a competitor
B) A new project's sales decrease the sales of the firm's existing products
C) The cost of raw materials increases
D) The project is rejected
Correct Answer: B) A new project's sales decrease the sales of the firm's existing
products
10. What is "WACC" (Weighted Average Cost of Capital)?
, A) The average salary of the finance team
B) The average rate of return a company is expected to pay to all its security holders to finance
its assets
C) The interest rate on short-term debt only
D) The growth rate of the company's revenue
Correct Answer: B) The average rate of return a company is expected to pay to all its
security holders to finance its assets
11. In the WACC formula, why is the cost of debt multiplied by (1 - Tax Rate)?
A) Because debt is illegal
B) Because interest payments on debt are generally tax-deductible
C) Because equity has a higher tax rate
D) To make the formula look more complicated
Correct Answer: B) Because interest payments on debt are generally tax-deductible
12. What does "CAPM" stand for?
A) Capital Asset Pricing Model
B) Corporate Accounting Profit Margin
C) Cash And Property Management
D) Current Asset Pricing Matrix
Correct Answer: A) Capital Asset Pricing Model
13. In CAPM, what does "Beta" (β) measure?
A) The profitability of a stock
B) The systematic risk or volatility of a stock relative to the overall market
C) The size of the company
D) The interest rate on a bond
Correct Answer: B) The systematic risk or volatility of a stock relative to the overall
market
14. If a stock has a Beta of 1.0, it means:
A) It has zero risk
B) Its price moves exactly in line with the broader market
C) Its price moves twice as fast as the market
D) It guarantees a 1% return
Correct Answer: B) Its price moves exactly in line with the broader market
15. What is the "Risk-Free Rate" typically based on?
A) The interest rate of a corporate bond
B) The yield of a stable government bond (e.g., US Treasury bonds)
C) The inflation rate
D) The stock market average return
Correct Answer: B) The yield of a stable government bond (e.g., US Treasury bonds)
16. The "Market Risk Premium" is:
A) The extra price paid for a luxury good
B) The difference between the expected return on the market portfolio and the risk-free rate
C) The cost of buying a stock
D) The tax paid on capital gains
2026 Prep Pack
Investment Analysis, DCF & Financial Strategy (100 Questions)
1. What does "NPV" (Net Present Value) measure in capital budgeting?
A) The total revenue of a project
B) The difference between the present value of cash inflows and the present value of cash
outflows
C) The amount of time it takes to recover the initial investment
D) The accounting profit of a project
Correct Answer: B) The difference between the present value of cash inflows and the
present value of cash outflows
2. A project should generally be accepted if its NPV is:
A) Negative
B) Exactly zero
C) Positive
D) Less than the initial investment
Correct Answer: C) Positive
3. What is the "IRR" (Internal Rate of Return)?
A) The interest rate the bank charges
B) The discount rate that makes the NPV of a project equal to zero
C) The inflation rate over the project's life
D) The required rate of return by shareholders
Correct Answer: B) The discount rate that makes the NPV of a project equal to zero
4. When NPV and IRR give conflicting decisions for mutually exclusive projects, which
metric should you trust?
A) IRR, because it is a percentage
B) NPV, because it measures the absolute increase in wealth/value
C) Neither, you should use the Payback Period
D) It depends on the CEO's preference
Correct Answer: B) NPV, because it measures the absolute increase in wealth/value
5. What is the "Payback Period"?
A) The time required for an investment to generate cash flows sufficient to recover its initial cost
,B) The total lifespan of the project
C) The time it takes to pay off a bank loan
D) The time until the company goes public
Correct Answer: A) The time required for an investment to generate cash flows sufficient
to recover its initial cost
6. A major flaw of the traditional Payback Period is that it:
A) Is too complicated to calculate
B) Ignores the time value of money and cash flows occurring after the payback period
C) Always gives the same answer as NPV
D) Requires knowing the exact cost of capital
Correct Answer: B) Ignores the time value of money and cash flows occurring after the
payback period
7. "Sunk Costs" are costs that:
A) Will be paid in the future
B) Have already been incurred and cannot be recovered, so they should be ignored in capital
budgeting
C) Are the most important costs to include in NPV
D) Change depending on the project's success
Correct Answer: B) Have already been incurred and cannot be recovered, so they should
be ignored in capital budgeting
8. In capital budgeting, "Opportunity Cost" is:
A) The cost of hiring new employees
B) The potential benefit lost by choosing one alternative over another
C) The tax paid on profits
D) A sunk cost
Correct Answer: B) The potential benefit lost by choosing one alternative over another
9. "Cannibalization" in capital budgeting occurs when:
A) A company buys out a competitor
B) A new project's sales decrease the sales of the firm's existing products
C) The cost of raw materials increases
D) The project is rejected
Correct Answer: B) A new project's sales decrease the sales of the firm's existing
products
10. What is "WACC" (Weighted Average Cost of Capital)?
, A) The average salary of the finance team
B) The average rate of return a company is expected to pay to all its security holders to finance
its assets
C) The interest rate on short-term debt only
D) The growth rate of the company's revenue
Correct Answer: B) The average rate of return a company is expected to pay to all its
security holders to finance its assets
11. In the WACC formula, why is the cost of debt multiplied by (1 - Tax Rate)?
A) Because debt is illegal
B) Because interest payments on debt are generally tax-deductible
C) Because equity has a higher tax rate
D) To make the formula look more complicated
Correct Answer: B) Because interest payments on debt are generally tax-deductible
12. What does "CAPM" stand for?
A) Capital Asset Pricing Model
B) Corporate Accounting Profit Margin
C) Cash And Property Management
D) Current Asset Pricing Matrix
Correct Answer: A) Capital Asset Pricing Model
13. In CAPM, what does "Beta" (β) measure?
A) The profitability of a stock
B) The systematic risk or volatility of a stock relative to the overall market
C) The size of the company
D) The interest rate on a bond
Correct Answer: B) The systematic risk or volatility of a stock relative to the overall
market
14. If a stock has a Beta of 1.0, it means:
A) It has zero risk
B) Its price moves exactly in line with the broader market
C) Its price moves twice as fast as the market
D) It guarantees a 1% return
Correct Answer: B) Its price moves exactly in line with the broader market
15. What is the "Risk-Free Rate" typically based on?
A) The interest rate of a corporate bond
B) The yield of a stable government bond (e.g., US Treasury bonds)
C) The inflation rate
D) The stock market average return
Correct Answer: B) The yield of a stable government bond (e.g., US Treasury bonds)
16. The "Market Risk Premium" is:
A) The extra price paid for a luxury good
B) The difference between the expected return on the market portfolio and the risk-free rate
C) The cost of buying a stock
D) The tax paid on capital gains
