FINANCE 3101 KEEN FINAL EXAM
QUESTIONS AND ANSWERS 2025
What is meant by "benchmarking"? - CORRECT ANSWER-comparing a company’s
financial data to another company’s data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? -
CORRECT ANSWER-trend: one company, multiple time periods
cross section: multiple companies, multiple time periods
How do we common-size the BS and IS and for what purpose? - CORRECT ANSWER-
divide everything by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? - CORRECT
ANSWER-ratio = fraction, proportion, percentage
Tells us "how many times the top is of the bottom"
What is the DuPont framework and what is it used for? - CORRECT ANSWER-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 does the Equity Multiplier represent? - CORRECT ANSWER-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) - CORRECT ANSWER-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 - CORRECT ANSWER-False
True or False: Ratio, proportion, fraction, and percent all mean the same thing -
CORRECT ANSWER-True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 -
CORRECT ANSWER-False
True or False: the higher the equity multiplier, the greater is the proportion of a firm's
assets that are financed with equity - CORRECT ANSWER-False
, True or False: Common-size values on the balance sheet show each item as a percent
of total equity - CORRECT ANSWER-False
True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would
down by approximately 6% - CORRECT ANSWER-False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity -
CORRECT ANSWER-False
True or False: an increase in the cash coverage ratio means that a firm is likely to
default on its outstanding debt - CORRECT ANSWER-True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the
use of debt would increase a firm's ROE - CORRECT ANSWER-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 - CORRECT ANSWER-True
True or False: Corporate managers who are doing a better job of serving owners would
see the market-book ratio their firm exceed the ratio for managers who are not doing as
good a job - CORRECT ANSWER-True
What is meant by the "cost of capital" and why is the "cost of capital" important? -
CORRECT ANSWER-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? - CORRECT ANSWER-"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" - CORRECT
ANSWER-True
True or False: the after-tax cost of debt is higher than the before tax cost of debt -
CORRECT ANSWER-False
QUESTIONS AND ANSWERS 2025
What is meant by "benchmarking"? - CORRECT ANSWER-comparing a company’s
financial data to another company’s data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? -
CORRECT ANSWER-trend: one company, multiple time periods
cross section: multiple companies, multiple time periods
How do we common-size the BS and IS and for what purpose? - CORRECT ANSWER-
divide everything by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? - CORRECT
ANSWER-ratio = fraction, proportion, percentage
Tells us "how many times the top is of the bottom"
What is the DuPont framework and what is it used for? - CORRECT ANSWER-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 does the Equity Multiplier represent? - CORRECT ANSWER-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) - CORRECT ANSWER-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 - CORRECT ANSWER-False
True or False: Ratio, proportion, fraction, and percent all mean the same thing -
CORRECT ANSWER-True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 -
CORRECT ANSWER-False
True or False: the higher the equity multiplier, the greater is the proportion of a firm's
assets that are financed with equity - CORRECT ANSWER-False
, True or False: Common-size values on the balance sheet show each item as a percent
of total equity - CORRECT ANSWER-False
True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would
down by approximately 6% - CORRECT ANSWER-False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity -
CORRECT ANSWER-False
True or False: an increase in the cash coverage ratio means that a firm is likely to
default on its outstanding debt - CORRECT ANSWER-True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the
use of debt would increase a firm's ROE - CORRECT ANSWER-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 - CORRECT ANSWER-True
True or False: Corporate managers who are doing a better job of serving owners would
see the market-book ratio their firm exceed the ratio for managers who are not doing as
good a job - CORRECT ANSWER-True
What is meant by the "cost of capital" and why is the "cost of capital" important? -
CORRECT ANSWER-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? - CORRECT ANSWER-"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" - CORRECT
ANSWER-True
True or False: the after-tax cost of debt is higher than the before tax cost of debt -
CORRECT ANSWER-False
