MGT 8803: Business Fundamentals Practice Examination With
Correct Answers (2025/2026)
1. A company has Net Income of $50,000, Interest Expense of $5,000, and a Tax Rate of 30%.
Calculate the Earnings Before Interest and Taxes (EBIT).
correct answer Net Income / (1 - Tax Rate) + Interest Expense = $50,.7 + $5,000 =
$76,428.57.
2. Which financial statement reflects the "Accounting Equation" (Assets = Liabilities + Equity) at
a specific point in time?
correct answer The Balance Sheet.
3. Under Accrual Accounting, when is revenue recognized?
correct answer When it is earned, regardless of when cash is received.
4. Calculate the Current Ratio if Current Assets are $120,000 and Current Liabilities are
$40,000.
correct answer $120,000 / $40,000 = 3.0.
5. What is the "Double Entry" rule for an increase in an Asset account?
correct answer A Debit.
6. If a firm’s Cost of Goods Sold (COGS) is $600,000 and average Inventory is $100,000, what is
the Inventory Turnover?
correct answer $600,000 / $100,000 = 6 times.
7. What is the Net Present Value (NPV) of a project costing $100 today that returns $110 in one
year, given a discount rate of 10%?
correct answer ($.10) - $100 = $0.
8. In Finance, what does the CAPM (Capital Asset Pricing Model) formula calculate?
correct answer The Expected Return on an asset (Cost of Equity).
9. If a stock has a Beta of 1.2, a Risk-Free Rate of 2%, and a Market Risk Premium of 5%, what is
the expected return?
correct answer 2% + (1.2 * 5%) = 8%.
10. What is the primary goal of Financial Management in a corporation?
correct answer To maximize Shareholder Wealth (Stock Price).
11. What is the difference between the Coupon Rate and the Yield to Maturity (YTM) on a bond?
correct answer Coupon Rate is the fixed interest payment percentage; YTM is the total
expected market return if held to maturity.
12. A project has an Initial Investment of $200 and generates $60 per year forever. If the
discount rate is 10%, what is the NPV?
correct answer ($.10) - $200 = $400.
13. Which component of the WACC (Weighted Average Cost of Capital) is adjusted for taxes?
correct answer The Cost of Debt.
14. In Marketing, what are the "4 Ps"?
correct answer Product, Price, Place, and Promotion.
, 15. What is the formula for Customer Lifetime Value (CLV)?
correct answer (Contribution Margin * Retention Rate) / (1 + Discount Rate - Retention
Rate).
16. In Segmenting, Targeting, and Positioning (STP), what does "Positioning" refer to?
correct answer The space the product occupies in the consumer's mind relative to
competitors.
17. If Total Fixed Costs are $10,000, Unit Price is $20, and Unit Variable Cost is $15, what is the
Break-Even Point in units?
correct answer $10,000 / ($20 - $15) = 2,000 units.
18. What is "Price Elasticity of Demand"?
correct answer The percentage change in quantity demanded divided by the percentage
change in price.
19. In the BCG Matrix, a product with high market share in a slow-growth industry is called a...
correct answer Cash Cow.
20. What is the "Bullwhip Effect" in Supply Chain Management?
correct answer The phenomenon where small fluctuations in demand at the retail level
cause larger fluctuations at the wholesale and manufacturing levels.
21. Calculate Little’s Law (Inventory = Throughput x Flow Time) if a bakery produces 50
loaves/hour and each loaf stays in the shop for 2 hours.
correct answer 50 * 2 = 100 loaves in inventory.
22. What is a "Bottleneck" in a process?
correct answer The stage with the lowest capacity (longest processing time) that limits the
entire system's output.
23. If Task A takes 10 minutes and Task B takes 15 minutes in a sequential process, what is the
Process Capacity per hour?
correct answer = 4 units per hour.
24. What is the "Economic Order Quantity" (EOQ) intended to minimize?
correct answer The sum of Holding Costs and Ordering Costs.
25. In Six Sigma, what is the maximum number of defects allowed per million opportunities
(DPMO)?
correct answer 3.4.
26. What does "Utilization" represent in operations?
correct answer Flow Rate / Capacity.
27. A firm has $500 in Assets and $300 in Debt. What is the Equity Multiplier?
correct answer $500 / ($500 - $300) = 2.5.
28. According to the DuPont Analysis, ROE is the product of Profit Margin, Total Asset Turnover,
and...
correct answer Equity Multiplier.
Correct Answers (2025/2026)
1. A company has Net Income of $50,000, Interest Expense of $5,000, and a Tax Rate of 30%.
Calculate the Earnings Before Interest and Taxes (EBIT).
correct answer Net Income / (1 - Tax Rate) + Interest Expense = $50,.7 + $5,000 =
$76,428.57.
2. Which financial statement reflects the "Accounting Equation" (Assets = Liabilities + Equity) at
a specific point in time?
correct answer The Balance Sheet.
3. Under Accrual Accounting, when is revenue recognized?
correct answer When it is earned, regardless of when cash is received.
4. Calculate the Current Ratio if Current Assets are $120,000 and Current Liabilities are
$40,000.
correct answer $120,000 / $40,000 = 3.0.
5. What is the "Double Entry" rule for an increase in an Asset account?
correct answer A Debit.
6. If a firm’s Cost of Goods Sold (COGS) is $600,000 and average Inventory is $100,000, what is
the Inventory Turnover?
correct answer $600,000 / $100,000 = 6 times.
7. What is the Net Present Value (NPV) of a project costing $100 today that returns $110 in one
year, given a discount rate of 10%?
correct answer ($.10) - $100 = $0.
8. In Finance, what does the CAPM (Capital Asset Pricing Model) formula calculate?
correct answer The Expected Return on an asset (Cost of Equity).
9. If a stock has a Beta of 1.2, a Risk-Free Rate of 2%, and a Market Risk Premium of 5%, what is
the expected return?
correct answer 2% + (1.2 * 5%) = 8%.
10. What is the primary goal of Financial Management in a corporation?
correct answer To maximize Shareholder Wealth (Stock Price).
11. What is the difference between the Coupon Rate and the Yield to Maturity (YTM) on a bond?
correct answer Coupon Rate is the fixed interest payment percentage; YTM is the total
expected market return if held to maturity.
12. A project has an Initial Investment of $200 and generates $60 per year forever. If the
discount rate is 10%, what is the NPV?
correct answer ($.10) - $200 = $400.
13. Which component of the WACC (Weighted Average Cost of Capital) is adjusted for taxes?
correct answer The Cost of Debt.
14. In Marketing, what are the "4 Ps"?
correct answer Product, Price, Place, and Promotion.
, 15. What is the formula for Customer Lifetime Value (CLV)?
correct answer (Contribution Margin * Retention Rate) / (1 + Discount Rate - Retention
Rate).
16. In Segmenting, Targeting, and Positioning (STP), what does "Positioning" refer to?
correct answer The space the product occupies in the consumer's mind relative to
competitors.
17. If Total Fixed Costs are $10,000, Unit Price is $20, and Unit Variable Cost is $15, what is the
Break-Even Point in units?
correct answer $10,000 / ($20 - $15) = 2,000 units.
18. What is "Price Elasticity of Demand"?
correct answer The percentage change in quantity demanded divided by the percentage
change in price.
19. In the BCG Matrix, a product with high market share in a slow-growth industry is called a...
correct answer Cash Cow.
20. What is the "Bullwhip Effect" in Supply Chain Management?
correct answer The phenomenon where small fluctuations in demand at the retail level
cause larger fluctuations at the wholesale and manufacturing levels.
21. Calculate Little’s Law (Inventory = Throughput x Flow Time) if a bakery produces 50
loaves/hour and each loaf stays in the shop for 2 hours.
correct answer 50 * 2 = 100 loaves in inventory.
22. What is a "Bottleneck" in a process?
correct answer The stage with the lowest capacity (longest processing time) that limits the
entire system's output.
23. If Task A takes 10 minutes and Task B takes 15 minutes in a sequential process, what is the
Process Capacity per hour?
correct answer = 4 units per hour.
24. What is the "Economic Order Quantity" (EOQ) intended to minimize?
correct answer The sum of Holding Costs and Ordering Costs.
25. In Six Sigma, what is the maximum number of defects allowed per million opportunities
(DPMO)?
correct answer 3.4.
26. What does "Utilization" represent in operations?
correct answer Flow Rate / Capacity.
27. A firm has $500 in Assets and $300 in Debt. What is the Equity Multiplier?
correct answer $500 / ($500 - $300) = 2.5.
28. According to the DuPont Analysis, ROE is the product of Profit Margin, Total Asset Turnover,
and...
correct answer Equity Multiplier.
