1. In a discounted cash flow model, which function can be used to

calculate the net present value of future cash flows?

A) SUM

B) NPV

C) IRR

D) PMT

Answer: B) NPV

Rationale: The NPV function is specifically designed to calculate the net

present value of a series of cash flows by discounting them back to their

present value.

2. When constructing a financial model in Excel, what is the purpose of

using the $ symbol in a cell reference?

A) To indicate currency

B) To prevent a reference from changing when copied

C) To automatically update with inflation

D) To align text to the right

Answer: B) To prevent a reference from changing when copied

Rationale: The $ symbol is used in cell references to create an absolute

reference that remains constant, even when the formula is copied to

another cell.

3. Which of the following is a best practice when creating complex

spreadsheet models?

A) Use hard-coded numbers in formulas

B) Keep all calculations on one sheet

C) Document assumptions and sources

D) Use multiple nested IF statements

Answer: C) Document assumptions and sources

Rationale: Documenting assumptions and sources ensures transparency

and ease of understanding for users who may review or audit the model.

4. What is the primary benefit of using the VLOOKUP function in a

financial model?

A) It consolidates multiple sheets into one

B) It finds and retrieves data from a specific column

C) It sorts data alphabetically