,WGU D365 Financial Management II — Objective Assessment | OA V1 and V2 | Questions and
Answers | 2026 Update | 100% Correct.
Question 1
A company has the following capital structure:
Market value of debt = $2,000,000
Market value of equity = $3,000,000
Cost of debt = 6%
Cost of equity = 11%
Corporate tax rate = 25%
What is the company’s Weighted Average Cost of Capital (WACC)?
A. 7.80%
B. 8.55%
C. 9.00%
D. 10.25%
Answer:
B. 8.55%
Explanation:
Use the WACC formula:
WACC = \left(\frac{E}{V} \times R_e\right) + \left(\frac{D}{V} \times R_d \times (1-T)\right)
Where:
Total value = $5,000,000
Equity weight = 3M ÷ 5M = 0.60
Debt weight = 2M ÷ 5M = 0.40
After-tax debt cost:
6% × (1 − 0.25) = 4.5%
WACC:
(0.60 × 11%) + (0.40 × 4.5%)
= 6.6% + 1.8%
= 8.4%
Closest answer: 8.55%.
,Question 2
A project requires an initial investment of $120,000 and is expected to generate annual cash
inflows of $35,000 for 5 years. If the required rate of return is 8%, what is the project’s
approximate NPV?
A. $(5,245)
B. $8,763
C. $19,755
D. $32,110
Answer:
C. $19,755
Explanation:
Calculate the present value of the annuity:
PV factor for 5 years at 8% ≈ 3.993
PV of inflows:
35,000 × 3.993 = 139,755
NPV:
139,755 − 120,000 = 19,755
Positive NPV means the project adds value.
Question 3
Which financing source generally has the LOWEST cost of capital?
A. Common stock
B. Preferred stock
C. Retained earnings
D. Long-term debt
Answer:
D. Long-term debt
, Explanation:
Debt usually has the lowest cost because:
Interest payments are tax deductible
Debt holders assume less risk than equity investors
Equity financing typically requires higher returns due to greater investor risk.
Question 4
A company’s beta is 1.4. The risk-free rate is 3%, and the expected market return is 10%.
What is the company’s cost of equity using CAPM?
A. 9.8%
B. 11.2%
C. 12.8%
D. 14.0%
Answer:
C. 12.8%
Explanation:
Use CAPM:
R_e = R_f + \beta (R_m - R_f)
Substitute values:
= 3% + 1.4(10% − 3%)
= 3% + 1.4(7%)
= 3% + 9.8%
= 12.8%
Question 5
Which capital budgeting method directly measures shareholder wealth creation?
Answers | 2026 Update | 100% Correct.
Question 1
A company has the following capital structure:
Market value of debt = $2,000,000
Market value of equity = $3,000,000
Cost of debt = 6%
Cost of equity = 11%
Corporate tax rate = 25%
What is the company’s Weighted Average Cost of Capital (WACC)?
A. 7.80%
B. 8.55%
C. 9.00%
D. 10.25%
Answer:
B. 8.55%
Explanation:
Use the WACC formula:
WACC = \left(\frac{E}{V} \times R_e\right) + \left(\frac{D}{V} \times R_d \times (1-T)\right)
Where:
Total value = $5,000,000
Equity weight = 3M ÷ 5M = 0.60
Debt weight = 2M ÷ 5M = 0.40
After-tax debt cost:
6% × (1 − 0.25) = 4.5%
WACC:
(0.60 × 11%) + (0.40 × 4.5%)
= 6.6% + 1.8%
= 8.4%
Closest answer: 8.55%.
,Question 2
A project requires an initial investment of $120,000 and is expected to generate annual cash
inflows of $35,000 for 5 years. If the required rate of return is 8%, what is the project’s
approximate NPV?
A. $(5,245)
B. $8,763
C. $19,755
D. $32,110
Answer:
C. $19,755
Explanation:
Calculate the present value of the annuity:
PV factor for 5 years at 8% ≈ 3.993
PV of inflows:
35,000 × 3.993 = 139,755
NPV:
139,755 − 120,000 = 19,755
Positive NPV means the project adds value.
Question 3
Which financing source generally has the LOWEST cost of capital?
A. Common stock
B. Preferred stock
C. Retained earnings
D. Long-term debt
Answer:
D. Long-term debt
, Explanation:
Debt usually has the lowest cost because:
Interest payments are tax deductible
Debt holders assume less risk than equity investors
Equity financing typically requires higher returns due to greater investor risk.
Question 4
A company’s beta is 1.4. The risk-free rate is 3%, and the expected market return is 10%.
What is the company’s cost of equity using CAPM?
A. 9.8%
B. 11.2%
C. 12.8%
D. 14.0%
Answer:
C. 12.8%
Explanation:
Use CAPM:
R_e = R_f + \beta (R_m - R_f)
Substitute values:
= 3% + 1.4(10% − 3%)
= 3% + 1.4(7%)
= 3% + 9.8%
= 12.8%
Question 5
Which capital budgeting method directly measures shareholder wealth creation?
