Finance 3101 Keen Final Exam Questions And Answers With Verified Tests 100% Correct Answers
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Course
Finance 3101 Keen
Institution
Finance 3101 Keen
What is the DuPont framework and what is it used for? - ️️A way of calculating
ROE using 3 different ratios.
The Dupont Framework is used to explain how companies can increase their return for
investors.
What is the difference between Trend (time-series) and cross-section analysis? -
️�...
Finance 3101 Keen Final Exam
What is the DuPont framework and what is it used for? - ✔️✔️A way of calculating
ROE using 3 different ratios.
The Dupont Framework is used to explain how companies can increase their return for
investors.
What is the difference between Trend (time-series) and cross-section analysis? -
✔️✔️trend: one company, multiple time periods
cross section: multiple companies, multiple time periods
What is meant by "benchmarking"? - ✔️✔️comparing a companies financial data to
another companies data or to its own previous data
How do we common-size the BS and IS and for what purpose? - ✔️✔️divide everything
by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? - ✔️✔️ratio =
fraction, proportion, percentage
Tells us "how many times the top is of the bottom"
What does the Equity Multiplier represent? - ✔️✔️The use of debt (financial leverage)
How does increased use of debt affect the cash coverage ratio and, ceteris paribus, a
firm's ROE (through the DuPont framework) - ✔️✔️More debit = Increase in ROE
True or False: Every ratio tells us for every one of what's on top, here's how many we
have of what's on the bottom - ✔️✔️False
True or False: Ratio, proportion, fraction, and percent all mean the same thing -
✔️✔️True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 -
✔️✔️False
True or False: the higher the equity multiplier, the greater is the proportion of a firm's
assets that are financed with equity - ✔️✔️False
True or False: Common-size values on the balance sheet show each item as a percent
of total equity - ✔️✔️False
, True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would
down by approximately 6% - ✔️✔️False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity -
✔️✔️False
True or False: an increase in the cash coverage ratio means that a firm is likely to
default on its outstanding debt - ✔️✔️True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the
use of debt would increase a firm's ROE - ✔️✔️True
True or False: For firms with lower P/E ratios, investors are valuing each dollar of
earnings less than for firms with higher P/E ratios - ✔️✔️True
What is meant by the "cost of capital" and why is the "cost of capital" important? -
✔️✔️cost of capital represents a hurdle rate that a company must overcome before it
can generate value. It is important to capital budgeting to determine whether a company
should proceed with a project
What is a firm's WACC used for? - ✔️✔️"Weight Average Cost of Capital"
WACC is the average rate a company expects to pay to finance its assets.
Used to estimate how much interest they will have to pay each year
True or False: the cost of capital is also known as the "hurdle rate" - ✔️✔️True
True or False: the after-tax cost of debt is higher than the before tax cost of debt -
✔️✔️False
True or False: the constant dividend growth model and CAPM are two ways of
estimating a firm's cost of equity - ✔️✔️True
True or False: the cost of capital uses the amount of total assets and debt as the capital
structure weights - ✔️✔️False
In deriving the WACC, market values are preferred over book values for capital
structure weights - ✔️✔️True
True or False: Ceteris paribus, projects with lower than average risk should be
evaluated using a higher than average WACC - ✔️✔️False
True or False: an unlevered firm is an all-equity firm - ✔️✔️True
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