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WGU D775 FINAL EXAMINATION – INTRODUCTION TO
BUSINESS FINANCE Latest 2026/2027 Update |
Objective Assessment Prep | Verified Answers &
Detailed Rationales | A+ Graded
SECTION 1: OVERVIEW OF FINANCIAL MANAGEMENT & FINANCIAL
STATEMENTS (1–20)
Question 1
Which of the following is the primary goal of financial management in a publicly
traded corporation?
A) Maximize net income
B) Maximize market share
C) Maximize the current value per share of the existing stock
D) Minimize costs
E) Avoid bankruptcy
Answer : C) Maximize the current value per share of the existing stock
RATIONALE:
The primary goal of financial management is to maximize shareholder wealth,
which translates to maximizing the market price of the company's common stock.
This goal considers both risk and return, the timing of cash flows, and is the most
comprehensive measure of the firm's performance. Maximizing net income
ignores risk and cash flow timing; maximizing market share may come at the
expense of profitability. Cost minimization and bankruptcy avoidance are sub-
goals.
Question 2
Which of the following financial statements reports the firm's revenues,
expenses, and net income over a period of time?
pg. 1
,2
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
E) Proxy Statement
Answer : B) Income Statement
RATIONALE:
The income statement (Profit & Loss statement) summarizes the firm's operating
performance over a specific period (e.g., quarter or year). It follows the basic
structure: Revenues – Expenses = Net Income. The balance sheet is a snapshot at
a point in time. The statement of cash flows shows cash inflows and outflows. The
statement of retained earnings shows changes in equity from net income and
dividends.
Question 3
On the balance sheet, assets are typically listed in order of:
A) Alphabetical order
B) Decreasing size
C) Liquidity (how quickly they can be converted to cash)
D) Historical cost
E) Market value
Answer : C) Liquidity (how quickly they can be converted to cash)
RATIONALE:
Assets on a balance sheet are generally listed in order of decreasing liquidity.
Current assets (cash, accounts receivable, inventory) are listed before long-term
(fixed) assets (property, plant, equipment). This presentation helps users assess
the firm's ability to meet short-term obligations.
Question 4
A firm has current assets of $500,000 and current liabilities of $250,000. Its
current ratio is:
pg. 2
,3
A) 0.5
B) 1.0
C) 2.0
D) 2.5
E) 5.0
Answer : C) 2.0
RATIONALE:
Current Ratio = Current Assets / Current Liabilities = $500,000 / $250,000 = 2.0.
This ratio measures short-term liquidity—the ability to pay current obligations
with current assets. A ratio of 2.0 generally indicates good liquidity. The quick
(acid-test) ratio excludes inventory from current assets.
Question 5
Which of the following is a use of cash (decrease in cash) on the statement of cash
flows?
A) Decrease in inventory
B) Increase in accounts payable
C) Increase in accounts receivable
D) Issuance of new stock
E) Sale of equipment
Answer : C) Increase in accounts receivable
RATIONALE:
An increase in accounts receivable represents sales made on credit that have not
yet been collected in cash; this uses (consumes) cash. A decrease in inventory and
an increase in accounts payable are sources of cash (they generate cash). Issuing
stock and selling equipment also provide cash.
Question 6
Which depreciation method allocates an equal amount of depreciation expense
each year over the asset's useful life?
pg. 3
, 4
A) Double-declining balance
B) Modified Accelerated Cost Recovery System (MACRS)
C) Straight-line depreciation
D) Sum-of-the-years' digits
E) Units-of-production
Answer : C) Straight-line depreciation
RATIONALE:
Straight-line depreciation = (Cost – Salvage Value) / Useful Life. It is the simplest
and most commonly used method for financial reporting. Accelerated methods
(MACRS, double-declining balance) allocate more depreciation in the early years
and are often used for tax purposes.
Question 7
Earnings Before Interest and Taxes (EBIT) is also known as:
A) Gross profit
B) Net income
C) Operating income
D) Retained earnings
E) Free cash flow
Answer : C) Operating income
RATIONALE:
EBIT (Earnings Before Interest and Taxes) represents the firm's profit from
operations before financing costs (interest) and taxes are deducted. It is a
measure of operating efficiency. Gross profit is Revenue – COGS; Net Income is
after all expenses including interest and taxes.
Question 8
Free Cash Flow (FCF) is calculated as:
A) EBIT + Depreciation – Taxes
B) EBIT(1 – Tax Rate) + Depreciation – Capital Expenditures – Change in Net
pg. 4
WGU D775 FINAL EXAMINATION – INTRODUCTION TO
BUSINESS FINANCE Latest 2026/2027 Update |
Objective Assessment Prep | Verified Answers &
Detailed Rationales | A+ Graded
SECTION 1: OVERVIEW OF FINANCIAL MANAGEMENT & FINANCIAL
STATEMENTS (1–20)
Question 1
Which of the following is the primary goal of financial management in a publicly
traded corporation?
A) Maximize net income
B) Maximize market share
C) Maximize the current value per share of the existing stock
D) Minimize costs
E) Avoid bankruptcy
Answer : C) Maximize the current value per share of the existing stock
RATIONALE:
The primary goal of financial management is to maximize shareholder wealth,
which translates to maximizing the market price of the company's common stock.
This goal considers both risk and return, the timing of cash flows, and is the most
comprehensive measure of the firm's performance. Maximizing net income
ignores risk and cash flow timing; maximizing market share may come at the
expense of profitability. Cost minimization and bankruptcy avoidance are sub-
goals.
Question 2
Which of the following financial statements reports the firm's revenues,
expenses, and net income over a period of time?
pg. 1
,2
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
E) Proxy Statement
Answer : B) Income Statement
RATIONALE:
The income statement (Profit & Loss statement) summarizes the firm's operating
performance over a specific period (e.g., quarter or year). It follows the basic
structure: Revenues – Expenses = Net Income. The balance sheet is a snapshot at
a point in time. The statement of cash flows shows cash inflows and outflows. The
statement of retained earnings shows changes in equity from net income and
dividends.
Question 3
On the balance sheet, assets are typically listed in order of:
A) Alphabetical order
B) Decreasing size
C) Liquidity (how quickly they can be converted to cash)
D) Historical cost
E) Market value
Answer : C) Liquidity (how quickly they can be converted to cash)
RATIONALE:
Assets on a balance sheet are generally listed in order of decreasing liquidity.
Current assets (cash, accounts receivable, inventory) are listed before long-term
(fixed) assets (property, plant, equipment). This presentation helps users assess
the firm's ability to meet short-term obligations.
Question 4
A firm has current assets of $500,000 and current liabilities of $250,000. Its
current ratio is:
pg. 2
,3
A) 0.5
B) 1.0
C) 2.0
D) 2.5
E) 5.0
Answer : C) 2.0
RATIONALE:
Current Ratio = Current Assets / Current Liabilities = $500,000 / $250,000 = 2.0.
This ratio measures short-term liquidity—the ability to pay current obligations
with current assets. A ratio of 2.0 generally indicates good liquidity. The quick
(acid-test) ratio excludes inventory from current assets.
Question 5
Which of the following is a use of cash (decrease in cash) on the statement of cash
flows?
A) Decrease in inventory
B) Increase in accounts payable
C) Increase in accounts receivable
D) Issuance of new stock
E) Sale of equipment
Answer : C) Increase in accounts receivable
RATIONALE:
An increase in accounts receivable represents sales made on credit that have not
yet been collected in cash; this uses (consumes) cash. A decrease in inventory and
an increase in accounts payable are sources of cash (they generate cash). Issuing
stock and selling equipment also provide cash.
Question 6
Which depreciation method allocates an equal amount of depreciation expense
each year over the asset's useful life?
pg. 3
, 4
A) Double-declining balance
B) Modified Accelerated Cost Recovery System (MACRS)
C) Straight-line depreciation
D) Sum-of-the-years' digits
E) Units-of-production
Answer : C) Straight-line depreciation
RATIONALE:
Straight-line depreciation = (Cost – Salvage Value) / Useful Life. It is the simplest
and most commonly used method for financial reporting. Accelerated methods
(MACRS, double-declining balance) allocate more depreciation in the early years
and are often used for tax purposes.
Question 7
Earnings Before Interest and Taxes (EBIT) is also known as:
A) Gross profit
B) Net income
C) Operating income
D) Retained earnings
E) Free cash flow
Answer : C) Operating income
RATIONALE:
EBIT (Earnings Before Interest and Taxes) represents the firm's profit from
operations before financing costs (interest) and taxes are deducted. It is a
measure of operating efficiency. Gross profit is Revenue – COGS; Net Income is
after all expenses including interest and taxes.
Question 8
Free Cash Flow (FCF) is calculated as:
A) EBIT + Depreciation – Taxes
B) EBIT(1 – Tax Rate) + Depreciation – Capital Expenditures – Change in Net
pg. 4
