pg. 1 WGU D076 Objective Assessments, Pre-Assessments & Finance Skills for Managers Final Exams (Latest 2024/ 2025 Updates) | Questions and Detailed Verified Answers| 100% Correct| A Grade
What area of finance involves deciding which assets to invest in to create wealth in the future? - Correct Answer - Investments
What makes the expected return subjective and different from other types of returns? - Correct Answer - The expected return is based on expectational data and the probability of different scenarios occurring. - The expected return is calculated from hypothesized or "best-guess" estimates of future prices or returns in different scenarios.
A company that produces soap, shampoo, lotion, and other personal care products has recently taken a hit due to a competitor's new product line. The company decides to reduce wages for its labor force to save money while the company focuses on building up its reputation again, but the company's labor force goes on strike to protest the pay cuts. What type of risk does the strike represent? - Correct Answer - Idiosyncratic risk - Idiosyncratic risk is the same as firm-specific risk. Since the strike will most likely affect only this firm, it is a firm-specific risk.
Which description below correctly identifies one type of price risk? - Correct Answer - Operating risk—depends on the effect of the firm's operating decisions on its operating costs -
What is the name for the process of "spreading" money over many different assets? - Correct Answer - Diversification
What is default risk? - Correct Answer - A firm-specific risk that comes from the probability of a loss resulting from a borrower's failure to repay a contractual obligation -
- / 4
pg. 2 Which type of interest rate includes interest on interest in addition to interest on the principal? - Correct Answer - Compound interest - The compound interest is known as interests on interests and the principal instead of only on the principal.
What is the rate at which the average price level of particular goods and services in an economy increases over a period of time? - Correct Answer - Inflation rate
You signed an apartment contract today. You are going to pay $1,500 at the beginning of each month for the next 12 months, starting today. What type of cash flows is this contract? - Correct Answer - An annuity due - An annuity due is a series of equal payments made at the beginning of consecutive periods.
What is the term for the return over the entire period that an investor owns a financial security? - Correct Answer - Holding period return
What is used to measure total risk? - Correct Answer - Standard deviation - Standard deviation is used to measure the total risk of securities.
What is the term for the risk that changes in interest rates will impact the value of a bond? - Correct Answer - Interest rate risk - This is the risk that changes in interest rates will impact the value of a bond.
A company currently has a ratio of 1.5 but hopes to improve the ratio to 2 to align more with the industry benchmark. To achieve this goal, costs were cut in production through an investment in efficient equipment, and the company achieved a higher profit margin.If this continues, you are certain that the firm will achieve its goal in two years. What is this an example of? - Correct Answer - Progress measurement - You are comparing the company's ratio to the goal and checking how the company is progressing toward the goal.
For what purpose are market ratios used? - Correct Answer - To evaluate the current share price of a public firm's stock - Market ratios are used to evaluate whether the current share of a public firm's stock is correctly priced.
- / 4
pg. 3 You are considering starting a new business to sell Widgets in your hometown. You can import the Widgets at a low cost, and you hope to be able to sell them for significantly more. Which ratio can help you calculate how much profit you will earn from the sale of each Widget? (Assume you are only considering the cost of the Widget, not any other operating costs.) - Correct Answer - Gross margin - Gross margin tells you the percent of sales that become gross profit. The rest of the money earned from sales is used for the production of goods.
What allows an investor to determine which financial activities are contributing to changes in the return on equity? - Correct Answer - DuPont framework - Decomposing the DuPont framework enables analysis of fundamental performance to determine which financial activities are contributing to changes in the return on equity.
Knowing that you are taking this finance class, a friend asks you about two investment opportunities he is considering. He wants to know which of the firms is using its assets more efficiently to generate sales. Which set of information could help you determine this? - Correct Answer - Firm A has an asset turnover of 4, and Firm B has an asset turnover of 2.5. - Asset turnover is an indicator of how well a firm uses its assets to generate sales. Since Firm A generates $4 of sales for every $1 of assets, it is using its assets more efficiently.
Why are ratios useful for analyzing and comparing company performance between firms of different sizes? - Correct Answer - They provide standardization. - Ratios standardize financial data to make them comparable across firms, even those of distinctly different sizes.
You are the financial manager of a firm. The firm is small and is struggling to collect cash from accounts receivable. Also, due to the nature of industry, inventories are illiquid. To make sure that the firm has enough cash holdings for short-term obligations, you decide to create a new ratio of cash to short-term obligations. What is this scenario an example of? - Correct Answer - Flexibility
Why are activity ratios also called efficiency ratios or asset use efficiency ratios? - Correct Answer - Because they measure how well a company uses its assets to generate sales or cash. 3 / 4
pg. 4 What type of ratio is used to consider how a firm is financed and to assess a firm's ability to pay interest and pay back long-term obligations? - Correct Answer - Financing ratios -Financing ratios consider how a firm is financed.
What does a net margin of 7% indicate? - Correct Answer - For every dollar of revenue,
- cents remain for the equity holders after all other costs are covered
Firm A has an average collection period of 67 days, and the industry norm is 40 days.What can the firm do in order to be competitive with accounts receivable management in the industry? - Correct Answer - Tighten the credit standards for its customers. - The credit standards are too loose, so the customers are not paying Firm A as quickly as they are paying other competitors in the industry. Tightening the credit standards would shorten the average collection period.
What is the difference between the current ratio and the quick ratio? - Correct Answer - Inventory is excluded in the calculation of the quick ratio. - Since inventory is the least liquid current asset, inventory is not included in the calculation.
Which term is used to describe the stock of a firm with market-to-book ratio of less than 1? - Correct Answer - Value stock - An M/B ratio of less than 1 is considered a value stock.
What does inventory turnover assess? - Correct Answer - The inventory management of a firm
You are comparing the return on equity of Firm 1 and Firm 2. Both firms have an identical profit margin and asset turnover, but Firm 1 has an overall higher return on equity. What must be true? - Correct Answer - Firm 1 is using a higher proportion of debt to finance its operations. - The third component of return on equity is the leverage multiplier. Since the firms' profit margins and asset turnovers are the same, it must be the leverage multiplier that is different. Using a higher amount of debt would result in a larger leverage multiplier and an overall higher return on equity.
W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for
- / 4