[GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
Question 1. **Which ratio primarily measures a company’s ability to meet short‑term
obligations?**
A) Debt‑to‑Equity
B) Current Ratio
C) Return on Assets
D) EV/EBITDA
Answer: B
Explanation: The Current Ratio (Current Assets ÷ Current Liabilities) assesses short‑term
liquidity.
Question 2. **What is the main purpose of common‑size vertical analysis of an income
statement?**
A) Compare profitability across years
B) Express each line item as a percentage of revenue
C) Determine cash conversion cycle
D) Calculate weighted average cost of capital
Answer: B
Explanation: Vertical analysis converts each income‑statement item to a % of sales, facilitating
comparison across firms or periods.
Question 3. **Which of the following is a non‑recurring item that analysts typically adjust out of
earnings?**
A) Depreciation expense
B) Gain on sale of a subsidiary
C) Cost of goods sold
D) Interest expense
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
Answer: B
Explanation: Gains or losses from one‑time asset sales are non‑recurring and can distort
earnings quality.
Question 4. **In DuPont analysis, which component isolates the effect of leverage on ROE?**
A. Net profit margin
B. Asset turnover
C. Equity multiplier
D. Gross margin
Answer: C
Explanation: The equity multiplier (Total Assets ÷ Equity) reflects financial leverage’s impact on
ROE.
Question 5. **When calculating Free Cash Flow to the Firm (FCFF), which of the following is
added back after EBIT after tax?**
A) Capital expenditures
B) Changes in working capital
C) Interest expense (net of tax)
D) Depreciation and amortization
Answer: D
Explanation: FCFF starts with NOPAT (EBIT×(1‑tax)) and adds back non‑cash charges like
depreciation.
Question 6. **Which terminal value method assumes the firm will grow at a constant rate
forever?**
A) Exit multiple method
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
B) Perpetuity growth method
C) Residual income method
D) Real options method
Answer: B
Explanation: The Perpetuity Growth (Gordon) model forecasts cash flows growing at a stable
rate indefinitely.
Question 7. **If a company’s EV/EBITDA multiple is 8× and its EBITDA is $150 million, what is its
enterprise value?**
A) $1.2 billion
B) $800 million
C) $1.0 billion
D) $1.5 billion
Answer: A
Explanation: EV = Multiple × EBITDA = 8 × $150 M = $1.2 billion.
Question 8. **Which of the following best describes the “control premium” observed in
precedent transaction analysis?**
A) Discount for lack of marketability
B) Additional price paid to obtain a controlling stake
C) Adjustment for differences in capital structure
D) Premium for higher growth prospects of the target
Answer: B
Explanation: A control premium is the extra amount an acquirer pays to gain decision‑making
control.
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
Question 9. **Net Present Value (NPV) is considered the “gold standard” because it:**
A) Ignores the cost of capital
B) Measures the percentage return on investment
C) Directly reflects the increase in shareholder wealth
D) Is independent of cash‑flow timing
Answer: C
Explanation: NPV quantifies the value added to shareholders after discounting cash flows at the
cost of capital.
Question 10. **When a project’s IRR exceeds the hurdle rate, the project should be:**
A) Rejected because of the multiple‑IRR problem
B) Accepted, assuming cash‑flow estimates are reliable
C) Accepted only if NPV is negative
D) Rejected if the profitability index is below 1
Answer: B
Explanation: An IRR above the required return indicates the project creates value, provided NPV
is also positive.
Question 11. **Which scenario illustrates a “real option” in capital budgeting?**
A) A firm chooses a fixed‑rate loan over a variable‑rate loan
B) A company acquires a patent that can be commercialized later
C) An investment with a constant cash‑flow stream for ten years
D) Using the payback period to evaluate a project
Answer: B
Explanation: The patent represents the option to invest in a future project, adding flexibility
beyond static cash‑flow analysis.
Finance Certification Review Guide
Question 1. **Which ratio primarily measures a company’s ability to meet short‑term
obligations?**
A) Debt‑to‑Equity
B) Current Ratio
C) Return on Assets
D) EV/EBITDA
Answer: B
Explanation: The Current Ratio (Current Assets ÷ Current Liabilities) assesses short‑term
liquidity.
Question 2. **What is the main purpose of common‑size vertical analysis of an income
statement?**
A) Compare profitability across years
B) Express each line item as a percentage of revenue
C) Determine cash conversion cycle
D) Calculate weighted average cost of capital
Answer: B
Explanation: Vertical analysis converts each income‑statement item to a % of sales, facilitating
comparison across firms or periods.
Question 3. **Which of the following is a non‑recurring item that analysts typically adjust out of
earnings?**
A) Depreciation expense
B) Gain on sale of a subsidiary
C) Cost of goods sold
D) Interest expense
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
Answer: B
Explanation: Gains or losses from one‑time asset sales are non‑recurring and can distort
earnings quality.
Question 4. **In DuPont analysis, which component isolates the effect of leverage on ROE?**
A. Net profit margin
B. Asset turnover
C. Equity multiplier
D. Gross margin
Answer: C
Explanation: The equity multiplier (Total Assets ÷ Equity) reflects financial leverage’s impact on
ROE.
Question 5. **When calculating Free Cash Flow to the Firm (FCFF), which of the following is
added back after EBIT after tax?**
A) Capital expenditures
B) Changes in working capital
C) Interest expense (net of tax)
D) Depreciation and amortization
Answer: D
Explanation: FCFF starts with NOPAT (EBIT×(1‑tax)) and adds back non‑cash charges like
depreciation.
Question 6. **Which terminal value method assumes the firm will grow at a constant rate
forever?**
A) Exit multiple method
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
B) Perpetuity growth method
C) Residual income method
D) Real options method
Answer: B
Explanation: The Perpetuity Growth (Gordon) model forecasts cash flows growing at a stable
rate indefinitely.
Question 7. **If a company’s EV/EBITDA multiple is 8× and its EBITDA is $150 million, what is its
enterprise value?**
A) $1.2 billion
B) $800 million
C) $1.0 billion
D) $1.5 billion
Answer: A
Explanation: EV = Multiple × EBITDA = 8 × $150 M = $1.2 billion.
Question 8. **Which of the following best describes the “control premium” observed in
precedent transaction analysis?**
A) Discount for lack of marketability
B) Additional price paid to obtain a controlling stake
C) Adjustment for differences in capital structure
D) Premium for higher growth prospects of the target
Answer: B
Explanation: A control premium is the extra amount an acquirer pays to gain decision‑making
control.
, [GCCF] Graduate Certificate In Corporate
Finance Certification Review Guide
Question 9. **Net Present Value (NPV) is considered the “gold standard” because it:**
A) Ignores the cost of capital
B) Measures the percentage return on investment
C) Directly reflects the increase in shareholder wealth
D) Is independent of cash‑flow timing
Answer: C
Explanation: NPV quantifies the value added to shareholders after discounting cash flows at the
cost of capital.
Question 10. **When a project’s IRR exceeds the hurdle rate, the project should be:**
A) Rejected because of the multiple‑IRR problem
B) Accepted, assuming cash‑flow estimates are reliable
C) Accepted only if NPV is negative
D) Rejected if the profitability index is below 1
Answer: B
Explanation: An IRR above the required return indicates the project creates value, provided NPV
is also positive.
Question 11. **Which scenario illustrates a “real option” in capital budgeting?**
A) A firm chooses a fixed‑rate loan over a variable‑rate loan
B) A company acquires a patent that can be commercialized later
C) An investment with a constant cash‑flow stream for ten years
D) Using the payback period to evaluate a project
Answer: B
Explanation: The patent represents the option to invest in a future project, adding flexibility
beyond static cash‑flow analysis.
