FIN301 Final Exam Study Guide — T/F Concept Review
This page turns the major ideas from the course into a clean concept guide for true/false review. It is designed to help learners focus on what each chapter is really about, where confusion usually happens, and what deserves extra attention before the final.
Important: this guide does not reveal actual exam questions. It stays at the level of chapter themes, common traps, and the key things to know well.
How to use this guide
Read each chapter in order. First master the big picture, then focus on the confused parts. If a chapter feels weak, open the extra notes and compare it with the chapter page or calculator.
Focus first on
- Main definitions and what each concept means in plain English.
- How ideas connect across chapters.
- Small wording differences that change whether a statement is true or false.
Watch especially for
- Mixing up formulas that look similar.
- Confusing accounting profit with cash flow.
- Using the right idea but the wrong interpretation.
Chapter 5 — Time Value of Money
Main theme: money at different points in time is not directly comparable until you move it to the same date.
Big ideas to master
- Present value moves money backward in time; future value moves money forward.
- A timeline is often the cleanest way to organize a TVM problem.
- Single cash flows, annuities, APR, and EAR are all different but connected ideas.
- Rate and time unit must match. Monthly rate goes with monthly periods.
Where people get confused
- Using an annual rate with monthly periods.
- Mixing up ordinary annuity and annuity due.
- Forgetting that Excel NPV starts with time 1, not time 0.
- Treating APR and EAR as the same thing.
Open extra Chapter 5 notes
- Keep the meaning clear: compounding rewards waiting; discounting adjusts future money back to today.
- TVM often looks mechanical, but the real test is whether the time line and units make sense.
- For T/F review, concentrate more on interpretation and setup than on heavy arithmetic.
Chapters 3–4 — Financial Statements and Ratio Analysis
Main theme: learn what the statements show, then use ratios to interpret the firm’s liquidity, leverage, profitability, and market position.
Big ideas to master
- Income statement, balance sheet, and cash flow statement do different jobs.
- Net income and cash flow are related but not the same.
- Changes in receivables, inventory, and payables affect cash.
- Key ratios include current ratio, debt ratio, profit margin, ROA, ROE, and market-based measures.
Where people get confused
- Thinking positive net income guarantees positive cash flow.
- Forgetting which items are assets, liabilities, expenses, or operating cash flow adjustments.
- Mixing up ROA and ROE because the denominators are different.
- Misreading P/E as “profit per share” instead of a market valuation ratio.
Main T/F emphasis here
Be very comfortable with the logic of what increases cash, what uses cash, what appears on each statement, and what each ratio is actually measuring.
Open extra Chapters 3–4 notes
- A decrease in accounts receivable is usually a source of cash because customers are paying what they owed.
- An inventory build-up can weaken cash even if sales look fine.
- Strong operating cash flow usually signals strength in the core business, but the statement still needs interpretation.
- In ratio analysis, always say what the ratio means, not just how to compute it.
Chapter 6 — Risk and Return
Main theme: expected return is the reward; risk is the uncertainty around that reward.
Big ideas to master
- Expected return uses probabilities and possible outcomes.
- Standard deviation measures total volatility.
- Diversification depends strongly on correlation.
- Beta measures systematic risk, and CAPM uses beta to estimate required return.
Where people get confused
- Confusing expected return with standard deviation.
- Thinking diversification can remove market-wide risk.
- Calling beta total risk instead of market risk.
- Mixing up the risk-free rate, market return, and market risk premium in CAPM.
Open extra Chapter 6 notes
- Zero correlation means movements are unrelated, while negative correlation gives even more diversification benefit.
- A stock with beta above 1 tends to move more than the market; beta below 1 tends to move less.
- Systematic risk stays even in a diversified portfolio; firm-specific risk can be reduced.
- For true/false, interpretation matters as much as formula memory.
Chapter 7 — Bond Valuation
Main theme: a bond’s price is the present value of its future coupons and face value.
Big ideas to master
- Understand par value, coupon rate, coupon payment, maturity, current yield, and YTM.
- Bond prices and yields move in opposite directions.
- Premium, discount, and par bonds each tell a different rate story.
- Zero-coupon bonds have no periodic coupons and are priced purely from the maturity payment.
Where people get confused
- Mixing up coupon rate, current yield, and yield to maturity.
- Forgetting to use semiannual treatment when the bond pays twice a year.
- Thinking T-bills and coupon bonds have the same payout structure.
- Believing rising rates make existing bond prices rise.
Open extra Chapter 7 notes
- If a bond sells above par, its YTM is below its coupon rate. If it sells below par, its YTM is above its coupon rate.
- A bond trading at par means coupon rate and YTM match.
- Lower-rated bonds usually need higher yields because investors require compensation for more credit risk.
- Longer maturity usually means greater sensitivity to interest-rate changes.
Chapter 8 — Stock Valuation
Main theme: stock value comes from future cash flows to shareholders, often simplified through dividend models.
Big ideas to master
- The general stock valuation idea is present value of future dividends.
- The Gordon model is for constant growth and requires the next dividend, not the last dividend.
- Total expected return can be viewed as dividend yield plus growth.
Where people get confused
- Using D0 instead of D1 in the constant-growth formula.
- Forgetting that D1 must be grown from D0 first.
- Using the Gordon model when required return is not greater than growth.
- Mixing up dividend yield and growth rate.
Open extra Chapter 8 notes
- If expected dividends rise, value usually rises. If required return rises, value usually falls.
- High growth can raise value, but only if the model assumptions still make sense.
- For T/F review, focus on interpretation of the formula, not just the symbol names.
Chapter 9 — WACC
Main theme: WACC blends the cost of debt and the cost of equity using the firm’s financing weights.
Big ideas to master
- Use weighted average cost of financing, not just a simple average.
- Use after-tax cost of debt because interest is tax-deductible.
- Cost of equity can come from CAPM or the dividend growth approach.
- Flotation costs raise the cost of new capital.
Where people get confused
- Using book-value weights instead of market-value weights.
- Forgetting the tax adjustment on debt.
- Mixing annual and semiannual bond inputs when estimating debt cost.
- Thinking more debt always lowers WACC no matter what.
Open extra Chapter 9 notes
- The logic matters: cheaper debt can help at moderate levels, but too much debt raises financial risk.
- Higher tax rates make debt relatively more attractive because the tax shield becomes more valuable.
- WACC is a decision tool, so the meaning behind each component matters more than memorizing one number.
Chapter 10 — Capital Budgeting
Main theme: decide whether a project creates value for the firm.
Big ideas to master
- NPV is the strongest value-creation rule: positive NPV means the project adds value.
- IRR is the discount rate that makes NPV equal zero.
- Payback focuses on recovery speed, but it has important weaknesses.
- Independent and mutually exclusive projects are not handled exactly the same way.
Where people get confused
- Thinking a shorter payback automatically means a better project.
- Forgetting that ordinary payback ignores time value of money.
- Accepting a project when IRR is below the cost of capital.
- For mutually exclusive projects, relying on only one shortcut metric.
Open extra Chapter 10 notes
- Use NPV as the central benchmark because it ties directly to firm value.
- IRR is useful, but it should be interpreted carefully when project patterns or timing differ.
- Crossover-rate thinking matters when comparing mutually exclusive projects with different timing patterns.
- For true/false, pay close attention to wording like “always,” “guarantees,” or “must.”