Practice Final Exam - Finance 3101
1) ________ is at the heart of corporate finance, because it is concerned with making the best
choices about project selection.
A) Capital budgeting
B) Capital structure
C) Payback period
D) Short-term budgeting
2) The ________ model determines at what point in time cash outflow is recovered by the
corresponding future cash inflow.
A) NPV
B) Buyback
C) Net Present Value
D) Payback Period
3) Acme, Inc. is considering a four-year project that has an initial outlay or cost of $100,000. The
respective future cash inflows from its project for years 1, 2, 3 and 4 are: $50,000, $40,000,
$30,000 and $20,000. Will it accept the project if its payback period is 31 months?
A) Yes, because it pays back in 25 months.
B) Yes, because it pays back in 28 months.
C) No, because it pays back in over 31 months.
D) No, because it pays back in over 33 months.
4) The net present value of an investment is ________.
A) the present value of all benefits (cash inflows).
B) the present value of all benefits (cash inflows) minus the present value of all costs (cash
outflows) of the project.
C) the present value of all costs (cash outflows) of the project.
D) the present value of all costs (cash outflow) minus the present value of all benefits (cash
inflow) of the project.
5) Projects are mutually exclusive if picking one project eliminates the ability to pick the other
project. This mutually exclusive situation can arise for different reasons. Which of the statements
below is NOT one of these reasons?
A) One project will always have a negative NPV.
B) There is a scarce resource that both projects would need.
C) There is need for only one project, and both projects can fulfill that current need.
D) By using funds for one project, there are not enough funds available for the other project.
6) Dweller, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax
cost of $80,000. The future cash inflows from its project are $40,000, $40,000, $30,000 and
$30,000 for years 1, 2, 3 and 4, respectively. Dweller uses the net present value method and has a
discount rate of 12%. Will Dweller accept the project?
A) Dweller accepts the project because the NPV is greater than $30,000.

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*Sign up*B) Dweller rejects the project because the NPV is less than -$4,000.
C) Dweller rejects the project because the NPV is -$3,021.
D) Dweller accepts the project because the NPV is greater than $28,000.
7) The IRR is the discount rate that produces a zero NPV or the specific discount rate at which
the present value of the cost equals ________.
A) the future value of the present cash outflows.
B) the present value of the future benefits or cash inflows.
C) the present value of the cash outflow.
D) the investment.

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