1
WGU D775/ D775 FINAL EXAMINATION – INTRODUCTION TO
BUSINESS FINANCE (LATEST 2026/2027 UPDATE) | Q&A WITH
VERIFIED ANSWERS AND DETAILED RATIONALES | OBJECTIVE
ASSESSMENT PREP | A+ GRADED | WESTERN GOVERNORS
UNIVERSITY] ACTUAL QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
Core Domains
Financial Statement Analysis and Ratio Interpretation
Time Value of Money and Discounted Cash Flow
Risk, Return, and Portfolio Theory
Bond and Stock Valuation
Capital Budgeting Decision Techniques
Cost of Capital Estimation
Working Capital and Short-Term Financial Management
Capital Structure and Leverage
Dividend Policy and Share Repurchases
Financial Markets, Institutions, and Ethics
Introduction
This comprehensive examination assesses the core competencies of introductory
business finance, covering the essential topics of financial statement analysis, time
value of money, valuation, capital budgeting, risk and return, and financial
decision-making. The 50 multiple-choice questions presented in this first section
are designed to mirror the rigor of the WGU D775 objective assessment,
integrating complex scenario-based problems that demand critical thinking,
quantitative analysis, and application of financial theory. Each question is
accompanied by a detailed rationale that reinforces key concepts and clarifies
common misconceptions. This resource is updated for the 2026/2027 academic
year and is intended to provide thorough preparation for the final examination,
ensuring mastery of the foundational principles of corporate finance.
pg. 1
,2
SECTION ONE: Questions 1–50
1. A firm has a net profit margin of 5%, total asset turnover of 1.5, and an
equity multiplier of 2.0. What is the firm’s return on equity (ROE) using the
DuPont identity?
A. 7.5%
B. 10%
C. 15%
D. 15%
RATIONALE: The DuPont identity decomposes ROE into three components:
ROE = (Net Profit Margin) × (Total Asset Turnover) × (Equity Multiplier). Plugging
in the given values: 0.05 × 1.5 × 2.0 = 0.15, or 15%. Thus, D is correct.
2. A project requires an initial investment of $50,000 and is expected to
generate cash flows of $15,000 per year for 5 years. If the discount rate is
10%, what is the project’s net present value (NPV)? (Present value of an
ordinary annuity of $1 for 5 years at 10% is 3.7908.)
A. $6,862
B. –$6,862
C. $6,862
D. $25,000
RATIONALE: NPV = Present value of future cash inflows – Initial investment.
PV of annuity = $15,000 × 3.7908 = $56,862. NPV = $56,862 – $50,000 = $6,862.
Since the NPV is positive, the project adds value. Option C is correct.
3. A bond with a par value of $1,000 pays a 6% annual coupon and matures in
10 years. If the required rate of return (yield to maturity) is 8%, this bond
will sell at:
A. Par
B. A premium
C. A discount
D. Cannot be determined
pg. 2
, 3
RATIONALE: When the coupon rate (6%) is less than the market yield (8%),
the bond's cash flows are discounted at a higher rate, causing the bond's price to
fall below its face value. Thus, the bond sells at a discount.
4. Which of the following capital budgeting methods directly accounts for the
time value of money and provides the expected increase in shareholder
wealth in absolute terms?
A. Payback period
B. Internal rate of return (IRR)
C. Net present value (NPV)
D. Profitability index
RATIONALE: NPV calculates the present value of all cash flows and gives the
dollar amount by which the firm's value will increase. IRR (B) provides a
percentage return but does not directly measure dollar value added. Profitability
index (D) measures value per dollar invested. Payback (A) ignores time value.
Thus, C is correct.
5. A firm’s current stock price is $50, and it just paid a dividend of $2.00 per
share, which is expected to grow at a constant rate of 4% per year.
According to the Gordon Growth Model, what is the cost of equity?
A. 4.0%
B. 8.0%
C. 8.16%
D. 8.16%
RATIONALE: The Gordon Growth Model: r = (D₁ / P₀) + g. D₁ = D₀ × (1+g) =
$2.00 × 1.04 = $2.08. r = ($2.08 / $50) + 0.04 = 0.0416 + 0.04 = 0.0816 or 8.16%.
So D is correct.
6. A firm is considering two mutually exclusive projects. Project A has an NPV
of $12,000 and an IRR of 15%, while Project B has an NPV of $18,000 and an
IRR of 12%. Which project should the firm choose if its cost of capital is
10%?
A. Project A because it has the higher IRR.
B. Project B because it has the higher NPV.
pg. 3
WGU D775/ D775 FINAL EXAMINATION – INTRODUCTION TO
BUSINESS FINANCE (LATEST 2026/2027 UPDATE) | Q&A WITH
VERIFIED ANSWERS AND DETAILED RATIONALES | OBJECTIVE
ASSESSMENT PREP | A+ GRADED | WESTERN GOVERNORS
UNIVERSITY] ACTUAL QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
Core Domains
Financial Statement Analysis and Ratio Interpretation
Time Value of Money and Discounted Cash Flow
Risk, Return, and Portfolio Theory
Bond and Stock Valuation
Capital Budgeting Decision Techniques
Cost of Capital Estimation
Working Capital and Short-Term Financial Management
Capital Structure and Leverage
Dividend Policy and Share Repurchases
Financial Markets, Institutions, and Ethics
Introduction
This comprehensive examination assesses the core competencies of introductory
business finance, covering the essential topics of financial statement analysis, time
value of money, valuation, capital budgeting, risk and return, and financial
decision-making. The 50 multiple-choice questions presented in this first section
are designed to mirror the rigor of the WGU D775 objective assessment,
integrating complex scenario-based problems that demand critical thinking,
quantitative analysis, and application of financial theory. Each question is
accompanied by a detailed rationale that reinforces key concepts and clarifies
common misconceptions. This resource is updated for the 2026/2027 academic
year and is intended to provide thorough preparation for the final examination,
ensuring mastery of the foundational principles of corporate finance.
pg. 1
,2
SECTION ONE: Questions 1–50
1. A firm has a net profit margin of 5%, total asset turnover of 1.5, and an
equity multiplier of 2.0. What is the firm’s return on equity (ROE) using the
DuPont identity?
A. 7.5%
B. 10%
C. 15%
D. 15%
RATIONALE: The DuPont identity decomposes ROE into three components:
ROE = (Net Profit Margin) × (Total Asset Turnover) × (Equity Multiplier). Plugging
in the given values: 0.05 × 1.5 × 2.0 = 0.15, or 15%. Thus, D is correct.
2. A project requires an initial investment of $50,000 and is expected to
generate cash flows of $15,000 per year for 5 years. If the discount rate is
10%, what is the project’s net present value (NPV)? (Present value of an
ordinary annuity of $1 for 5 years at 10% is 3.7908.)
A. $6,862
B. –$6,862
C. $6,862
D. $25,000
RATIONALE: NPV = Present value of future cash inflows – Initial investment.
PV of annuity = $15,000 × 3.7908 = $56,862. NPV = $56,862 – $50,000 = $6,862.
Since the NPV is positive, the project adds value. Option C is correct.
3. A bond with a par value of $1,000 pays a 6% annual coupon and matures in
10 years. If the required rate of return (yield to maturity) is 8%, this bond
will sell at:
A. Par
B. A premium
C. A discount
D. Cannot be determined
pg. 2
, 3
RATIONALE: When the coupon rate (6%) is less than the market yield (8%),
the bond's cash flows are discounted at a higher rate, causing the bond's price to
fall below its face value. Thus, the bond sells at a discount.
4. Which of the following capital budgeting methods directly accounts for the
time value of money and provides the expected increase in shareholder
wealth in absolute terms?
A. Payback period
B. Internal rate of return (IRR)
C. Net present value (NPV)
D. Profitability index
RATIONALE: NPV calculates the present value of all cash flows and gives the
dollar amount by which the firm's value will increase. IRR (B) provides a
percentage return but does not directly measure dollar value added. Profitability
index (D) measures value per dollar invested. Payback (A) ignores time value.
Thus, C is correct.
5. A firm’s current stock price is $50, and it just paid a dividend of $2.00 per
share, which is expected to grow at a constant rate of 4% per year.
According to the Gordon Growth Model, what is the cost of equity?
A. 4.0%
B. 8.0%
C. 8.16%
D. 8.16%
RATIONALE: The Gordon Growth Model: r = (D₁ / P₀) + g. D₁ = D₀ × (1+g) =
$2.00 × 1.04 = $2.08. r = ($2.08 / $50) + 0.04 = 0.0416 + 0.04 = 0.0816 or 8.16%.
So D is correct.
6. A firm is considering two mutually exclusive projects. Project A has an NPV
of $12,000 and an IRR of 15%, while Project B has an NPV of $18,000 and an
IRR of 12%. Which project should the firm choose if its cost of capital is
10%?
A. Project A because it has the higher IRR.
B. Project B because it has the higher NPV.
pg. 3
