BFIN 300 Final Review Questions With
Solutions
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to repair it.
Your total in-cost is $50,000. When the work is done, you place the home back on the market
and find that it's worth $60,000. What is your NPV?
a) Zero b...
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to repair it.
Your total in-cost is $50,000. When the work is done, you place the home back on the market
and find that it's worth $60,000. What is your NPV?
a) Zero b) $10,000 c) $25,000 d) $50,000 e) $60,000 $10,000
What is the difference between an investment's market value and cost?
a) Internal Rate of Return (IRR) b) Net Present Value (NPV) c) Capital budgeting process d)
Discounted Cash Flow (DCF) e) All of the above Net present value
As a financial manager, what will you do with an investment if its Net Present Value (NPV) is
negative?
a) Estimate the cash flows of the business b) Reject the investment c) Accept the investment d)
Be agnostic with the investment e) None of the above Reject the investment
Which investment technique yields the same result as Net Present Value (NPV)?
a) Payback Rule b) Discounted Payback Period c) Internal Rate of Return d) Average Accounting
Return e) Profitability Index Internal rate of return (IRR)
, BFIN 300 Final Review Questions With
Solutions
Which statement is true regarding the Internal Rate of Return (IRR)?
a) It is the most important alternative to Net Present Value b) The IRR is a single rate of return
which summarizes the merits of the project c) It is the discount rate which makes the Net Present
Value of an investment equate to zero d) An investment is acceptable if its IRR exceeds the
required return e) All of the above all of the above
Discounted Cash Flow Analysis an investment valuation technique that considers
anticipated changes in cash flows over years, projects the current value of net proceeds from the
sale of the property in the future, and accounts for the time value of money.
Relevant Cash Flow a change in the firm's overall future cash flow that comes about as a
direct consequence of the decision to take that project
Incremental Cash Flow the difference between the cash flows a company will produce
both with and without the investment it is thinking about making
Standalone Basis meaning the valuation is based on the cash flows generated by the
specific project or investment being evaluated. This is in contrast to considering the impact
within the context of the entire firm.
, BFIN 300 Final Review Questions With
Solutions
Sunk Costs costs that have already been incurred and cannot be recovered
Opportunity Costs the most desirable alternative given up as the result of a decision
Erosion any negative impact that is directed towards an organization's sales, profits, or
assets
Net working capital is defined as: the difference between a firm's current assets and its
current liabilities
Financial Costs total economic resources that must be spent or invested as a consumer
learns how to obtain value from a new product choice
Pro Forma Financial Statements financial statements projecting future years' operations
What is the best definition of an opportunity cost?
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