WGU D076 FINANCIAL SKILLS FOR
MANAGERS - ADVANCED
PROFICIENCY EXAM QUESTIONS AND
ANSWERS
1. Which of the following best describes the primary goal of financial management in a
publicly traded corporation?
A. To minimize the total tax liability of the firm over a ten-year period.
B. To maximize the firm’s total market share within its industry.
C. To maximize the current value per share of the existing stock.
D. To maintain a zero-debt capital structure to avoid financial risk.
Answer: C
Conceptual Explanation: The primary goal of financial management is to maximize
shareholder wealth, which is reflected in the market price of the stock.
2. An agency problem occurs when a conflict of interest exists between which two parties?
A. The firm’s creditors and the local government regulators.
B. The shareholders (principals) and the managers (agents) of the firm.
,C. The company’s marketing department and the operations department.
D. The board of directors and the external auditing firm.
Answer: B
Conceptual Explanation: Agency problems arise when managers act in their own best
interest rather than the interest of the shareholders who own the firm.
3. How is Net Working Capital calculated on a firm’s balance sheet?
A. Current Assets minus Current Liabilities.
B. Total Assets minus Total Equity.
C. Cash plus Accounts Receivable.
D. Long-term Debt minus Current Liabilities.
Answer: A
Conceptual Explanation: Net Working Capital is defined as the difference between
current assets and current liabilities, representing the firm’s short-term liquidity.
4. Which financial statement provides a ‘snapshot’ of a firm’s financial position at a specific
point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Statement of Cash Flows
, D. Balance Sheet
Answer: D
Conceptual Explanation: The balance sheet reports the assets, liabilities, and equity of a
firm at a specific date, unlike other statements that cover a period of time.
5. A firm has a Quick Ratio of 0.8. If the firm uses cash to pay off some of its accounts
payable, what will happen to the Quick Ratio?
A. The Quick Ratio will decrease.
B. The Quick Ratio will increase.
C. The Quick Ratio will remain unchanged.
D. The Quick Ratio will fall to zero.
Answer: A
Conceptual Explanation: Since the Quick Ratio is less than 1.0, subtracting the same
amount from both the numerator (Quick Assets) and the denominator (Current Liabilities)
will cause the ratio to decrease further.
6. What does the DuPont Identity break the Return on Equity (ROE) into?
A. Gross Margin, Inventory Turnover, and Debt Ratio.
B. Profit Margin, Total Asset Turnover, and Equity Multiplier.
C. Net Income, Interest Expense, and Taxes.
D. Current Ratio, Quick Ratio, and Cash Ratio.
MANAGERS - ADVANCED
PROFICIENCY EXAM QUESTIONS AND
ANSWERS
1. Which of the following best describes the primary goal of financial management in a
publicly traded corporation?
A. To minimize the total tax liability of the firm over a ten-year period.
B. To maximize the firm’s total market share within its industry.
C. To maximize the current value per share of the existing stock.
D. To maintain a zero-debt capital structure to avoid financial risk.
Answer: C
Conceptual Explanation: The primary goal of financial management is to maximize
shareholder wealth, which is reflected in the market price of the stock.
2. An agency problem occurs when a conflict of interest exists between which two parties?
A. The firm’s creditors and the local government regulators.
B. The shareholders (principals) and the managers (agents) of the firm.
,C. The company’s marketing department and the operations department.
D. The board of directors and the external auditing firm.
Answer: B
Conceptual Explanation: Agency problems arise when managers act in their own best
interest rather than the interest of the shareholders who own the firm.
3. How is Net Working Capital calculated on a firm’s balance sheet?
A. Current Assets minus Current Liabilities.
B. Total Assets minus Total Equity.
C. Cash plus Accounts Receivable.
D. Long-term Debt minus Current Liabilities.
Answer: A
Conceptual Explanation: Net Working Capital is defined as the difference between
current assets and current liabilities, representing the firm’s short-term liquidity.
4. Which financial statement provides a ‘snapshot’ of a firm’s financial position at a specific
point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Statement of Cash Flows
, D. Balance Sheet
Answer: D
Conceptual Explanation: The balance sheet reports the assets, liabilities, and equity of a
firm at a specific date, unlike other statements that cover a period of time.
5. A firm has a Quick Ratio of 0.8. If the firm uses cash to pay off some of its accounts
payable, what will happen to the Quick Ratio?
A. The Quick Ratio will decrease.
B. The Quick Ratio will increase.
C. The Quick Ratio will remain unchanged.
D. The Quick Ratio will fall to zero.
Answer: A
Conceptual Explanation: Since the Quick Ratio is less than 1.0, subtracting the same
amount from both the numerator (Quick Assets) and the denominator (Current Liabilities)
will cause the ratio to decrease further.
6. What does the DuPont Identity break the Return on Equity (ROE) into?
A. Gross Margin, Inventory Turnover, and Debt Ratio.
B. Profit Margin, Total Asset Turnover, and Equity Multiplier.
C. Net Income, Interest Expense, and Taxes.
D. Current Ratio, Quick Ratio, and Cash Ratio.
