BFIN 300 - FINAL EXAM 2024 Exam Questions With Solutions
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Course
BFIN300
Institution
BFIN300
BFIN 300 - FINAL EXAM 2024 Exam
Questions With Solutions
What is payback period rule? The length of time it takes for a project to return to its initial
investment
Based on the payback period rule, when is a project acceptable? If its calculated payback
is less than the prespecificed number...
BFIN 300 - FINAL EXAM 2024 Exam
Questions With Solutions
What is payback period rule? The length of time it takes for a project to return to its initial
investment
Based on the payback period rule, when is a project acceptable? If its calculated payback
is less than the prespecificed number ex; two years
What is discounted payback period rule? The length of time its takes for a project's
discounted cash flows to equal its initial investment
True or False; As long as the cash flows & discount rate are positive, the discounted payback
period will never be smaller than the payback period True, because the discounting
reduces the value of the cash flow
What is the best alternative to the NPV method? Internal rate of return (IRR)
What is Internal rate of return (IRR)? - The discount rate at which the net present value of
an investment is zero. It is a method of evaluation capital
, BFIN 300 - FINAL EXAM 2024 Exam
Questions With Solutions
- expenditure proposals
The interest rate that causes the NPV of the project to be zero
What is the general rule for using the IRR? Accept the project if the IRR is greater than
the discount rate. Reject the project if the IRR is less than the discount rate.
What is profitability index? The ratio of the present value of the future expected cash
flows after initial investment divided by the initial investment
What are relevant cash flows? - The cash inflows and outflows directly associated with a
particular decision or project
- A change in the firm's future cash flow that comes about a direct effect of the decision to that
that project
What are incremental cash flows? The difference between the cash flows of a firm with a
project and the cash flows of a firm without a project
In calculating the NPV of a project, what cash flows should be used? Incremental cash
flows
, BFIN 300 - FINAL EXAM 2024 Exam
Questions With Solutions
What does standalone basis mean? Analyzing a project without considering its
interactions with other activities or entities
What is a sunk cost? A cost that has already occurred and cannot be reversed, such costs
should be ignored when deciding whether to accept or reject a project
Why should sunk costs be ignored? They cannot be changed by a decision to accept or
reject a project
Are sunk costs incremental cash flows? No
What is an opportunity cost? -By taking a project a firm is foregoing other opportunities
for using the assets
- The most valuable alternative that is given up. The discount rate used in NPV computation is an
opportunity interest rate
Is an opportunity cost an incremental cash flow? No
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