Finals Exam Qns Ans

©2024/2025

FIN 3403

Business Finance

Finals Exam (Qns & Ans)

2025

General Instructions

1. Read All Questions Carefully: Make sure you understand each question.

2. Time Management: You have a specific amount of time to complete the exam.

Keep an eye on the clock and pace yourself.

• Allowed Materials: Only use materials that are explicitly allowed. Unauthorized

materials can lead to disqualification.

4. ANS Format: Follow the required format for your ANS. For example, multiple-

choice questions might need you to select the best ANS, while essay questions require detailed responses.

• Academic Integrity: Adhere to the university's honor code. Any form of cheating or

plagiarism is strictly prohibited.

6. Technical Requirements: Ensure your computer and internet connection are

stable. For online exams, you might need a webcam and microphone for proctoring purposes.

7. Submission: Submit your ANS before the time expires. Late submissions might

not be accepted.

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• Which of the following is considered a key element in the

Capital Asset Pricing Model (CAPM)?

• Market Risk Premium
• Earnings Before Interest and Taxes
• Total Asset Turnover
• Dividend Payout Ratio

Correct ANS: A

Rationale: The CAPM includes the market risk premium as a

key element in determining the expected return on an asset based on its systematic risk.

• In financial terms, which of the following best describes

'leverage'?

• The ability to secure funding through equity
• The ratio of debt to equity in a firm's capital structure
• The relationship between current assets and current liabilities
• The firm's ability to generate revenue

Correct ANS: B

Rationale: Leverage refers to the use of debt to increase the

potential return of an investment, often captured by ratios like debt-to-equity. 2 / 4

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• Which of the following is the most relevant when calculating

the Net Present Value (NPV) of a project?

• Historical Costs
• Expected Future Cash Flows
• Sunk Costs
• Book Value

Correct ANS: B

Rationale: NPV assesses the profitability of an investment

project by discounting expected future cash flows to their present value.

• What does the term 'cost of equity' refer to?
• The required return by shareholders
• The actual dividends paid out
• The tax rate applied to corporate earnings
• The cost of issuing new equity

Correct ANS: A

Rationale: The cost of equity is the return that investors

expect on their investment in a company, typically estimated using models like CAPM.

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Fill-in-the-Blank Questions

• The _____ ratio measures a company's ability to meet its

short-term obligations with its most liquid assets.

Correct ANS: Current

Rationale: The current ratio is a liquidity ratio that measures

a company's ability to cover its short-term liabilities with its short-term assets.

• In finance, the _____ premium compensates investors for the

risk associated with investing in stocks over risk-free government bonds.

Correct ANS: equity

Rationale: The equity risk premium is the excess return that

investing in the stock market provides over a risk-free rate.

• The _____ method is a commonly used technique to estimate

the future cash flows from a project or investment.

Correct ANS: Discounted cash flow

Rationale: The discounted cash flow (DCF) method values an

investment based on its expected future cash flows once they have been adjusted for time value.

True/False Questions

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