a firm is trying to choose the most profitable project to invest in which of the following should be used as the companys discount rate
a company is analyzing a vari
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University Of Louisiana - Lafayette
FNAN 522
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FNAN 522 FINAL EXAM NEW UPDATED
PRACTICE EXAM QUESTIONS AND
100% ALL CORRECT ANSWERS
1. A company is analyzing a variety of potential investments using different capital
budgeting methods. Which of the following represents the most profitable choice
based on the information provided?
- CORRECT ANSWER The company picks a project with profitability index of 1.25 over
a project with a PI of -.25 A firm is trying to choose the most profitable project to invest
in.
2. A firm is trying to choose the most profitable project to invest in. Which of the
following should be used as the company's discount rate?
- CORRECT ANSWER The company's reinvestment rate or weighted average cost of
capital.
(USE CALCULATOR) Calculate the discounted payback period for a project with a
discount rate of 5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -
$1000Year 3: $1000Year 4: $3000Year 5: $2000 - CORRECT ANSWER 3.44 years
3. In which of the following situations would it be appropriate to use the IRR method
to make an investment decision?
- CORRECT ANSWER to compare two projects that have an equal initial investment
and lifespan.
4. The tax rate that applies to the last dollar of the tax base and is often applied to
the change in one's tax obligation as income rises is called _____.
- CORRECT ANSWER the marginal tax rate
5. When evaluating the cash flows from a project, a financial manager needs to
analyze the:
- CORRECT ANSWER costs, benefits, and opportunity costs of the project.
, 6. Which of the following describes an advantage the internal rate of return has over
net present value for capital budgeting purposes?
- CORRECT ANSWER Internal rate of return is an indicator of the efficiency, quality or
yield of an investment.
7. Which of the following is a correct definition of a capital budgeting method?
- CORRECT ANSWER The internal rate of return is the discount rate that gives a net
present value of zero.
8. Which of the following is a way cash flow factors can be used to improve a
business?
- CORRECT ANSWER -It can be used to determine problems with a business's
liquidity.
-it can be used to evaluate the ""quality"" of income generated by accrual accounting.
-it can be used to .determine a project's rate of return or value
9. Which of the following is an element needed to calculate an asset's depreciation?
- CORRECT ANSWER a. The cost of the asset minus the asset's salvage value.
b. The estimated useful life of the asset.
c. A method of apportioning the cost of the asset.
10. A company has $2 million in machinery expenses and $3 million in rent. It costs
$30 per unit in labor costs to produce the good, which is sold for $50 per unit.
What is the break even point?
- CORRECT ANSWER 250,000 units
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