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SDSU BA 323 FINANCE FINAL EXAM NEWEST 2025
ACTUAL EXAM COMPLETE QUESTIONS AND
CORRECT DETAILED ANSWERS ( VERIFIED
ANSWERS) |A+ GRADED
If 2 projects have the same expected NPV, select the project with the less risky cash flow
How can Monte Carlo simulations improves forecast accuracy? - ANSWER-Monte Carlo simulation allow you to estimate a large number of scenarios for investment analysis
What are 3 types of project risk? - ANSWER-Stand-alone risk Corporate risk Market risk
Stand-alone risk - ANSWER-A project's total risk, if it were operated indepedently.
Corporate risk - ANSWER-Project's risk when considering the firm's other projects 1 / 3
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Market risk - ANSWER-Project's risk to a well-diversified investor
Which risk is most relevant for corporations and why? - ANSWER-Market risk is the most relevant risk because management's primary goal is shareholder wealth maximization.Care most about systematic risk
What is real option analysis and why does this matter for deciding which projects to accept? - ANSWER-The analysis of capital budgeting projects for which managers can take positive actions after the investment to alter the project's cash flows
What are the different types of real options? - ANSWER- Abandonment, Investment timing, expansion potential, output flexibility, input flexibility.
What are 4 other considerations that managers may consider when deciding to accept or reject a project? - ANSWER- Opportunity cost, cannibalization, complementary, and sunk cost
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Business risk - ANSWER-The riskiness inherent in the firm's operation if it uses no debt. Measure with ROIC.
What is return on invested capital (ROIC)? - ANSWER-ROIC measures after-tax return that the company provides for all its investors
Does ROIC vary with changes in capital structure? - ANSWER- ROIC doesn't vary with changes in capital structure.
Does ROE vary with changes in capital structure? - ANSWER- ROE does vary with changes in capital structure.
What are some factors that determine business risk? - ANSWER-Competition
Uncertainty about demands (sales)
Uncertainty about output prices
Uncertainty about costs
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