Finance 3101 Final Keen Exam with A+
Graded Answers.
1. What does the equity multiplier represent - Correct Ans: ✔✔Use
of Debt
2. What is the relationship between the 3 principal total debt ratios -
Correct Ans: ✔✔Positive or direct
3. What is the DuPont framework used for - Correct Ans: ✔✔To
compare why different firms have different ROE
4. How does increased use of debt affect the cash coverage ratio
and ceteris paribus, a firms ROE (through the DuPont Framework)
- Correct Ans: ✔✔Increased use of debt lowers cash coverage
ratio and increases a firms ROE
5. What are the 4 basic components used to estimate a projects cash
flows - Correct Ans: ✔✔Initial capital investment; change in
NWC; OCF; and cash flow from salvage
6. What is meant by the cost of capital and why is the cost of capital
important - Correct Ans: ✔✔The require rate of return by
investors and cost of capital is the discount rate we use to
