WGU D775 OA GUIDE QUESTIONS AND
SOLUTIONS
◉ Activity Ratios.
Answer: A type of financial ratio that evaluates how efficiently a firm
utilizes its assets to generate sales or revenue; also known as
efficiency ratios.
◉ After-tax Cost of Debt.
Answer: An adjustment of the before-tax cost of debt that considers
the tax deductions on interest expenses. It reflects the actual cost to
a firm for debt financing after benefiting from tax breaks.
◉ Agency Costs.
Answer: Costs that are incurred by the firm when management and
employees of a company do not act in the best interests of
shareholders.
◉ Agency Problem.
Answer: A conflict of interest inherent in relationships where one
party is expected to act in another's best interests, such as between
shareholders and company management.
,◉ Annual Interest Rate.
Answer: The annualized cost of borrowing or the yearly interest rate
charged on a loan or credit balance. Also known as annual
percentage rate (APR).
◉ Annuity.
Answer: A financial arrangement in which a series of equal
payments is made or received at regular intervals over a specified
period of time.
◉ Assets.
Answer: Resources owned by the company that have economic
value.
◉ Auction Markets.
Answer: Financial markets in which buyers and sellers submit
competitive bids and offers, with transactions occurring at prices
that match the highest bid with the lowest offer.
◉ Average Collection Period.
Answer: A type of liquidity ratio that calculates the average number
of days it takes for a company to collect its receivables. Average
Collection Period = Accounts Receivable ÷ Daily Credit Sales.
,◉ Balance Sheet.
Answer: A financial statement that presents a company's financial
position at a specific point in time.
◉ Before-tax Cost of Debt.
Answer: The interest rate on loans or bonds. If a bank provides an
interest rate on a small business loan of 9.5%, then 9.5% is the
before-tax cost of debt.
◉ Board of Directors (BOD).
Answer: A group of individuals elected by a company's shareholders
to oversee the management and make key decisions on corporate
policies and strategy.
◉ Bonds.
Answer: Debt securities issued by corporations or governments to
raise capital, where the issuer agrees to pay back the principal along
with interest on specified dates.
◉ Book Value.
Answer: Literal value or face value.
◉ Business Finance.
, Answer: The area of the business in which 1) financial measures are
used to help management make decisions (ratio analysis), 2)
financial analysts use mathematical models to select what projects
to invest in (capital budgeting), and 3) financial analysts use the cost
of capital to determine whether these projects should be financed
with either debt or equity, and which type of each.
◉ Capital Appreciation.
Answer: When a stock is bought at a lower price than what it is sold.
Subtracting the lower purchase price from the higher sales price is
the appreciation.
◉ Capital Budgeting.
Answer: The process by which businesses evaluate potential
investments to determine if they are worth pursuing. It assesses
projected cash flows, costs, and returns of projects like new
machinery or acquisitions to ensure efficient resource allocation and
profitability.
◉ Capital Structure.
Answer: The mixture of debt and equity that a firm uses to finance
the company.
◉ Cash Ratio.
SOLUTIONS
◉ Activity Ratios.
Answer: A type of financial ratio that evaluates how efficiently a firm
utilizes its assets to generate sales or revenue; also known as
efficiency ratios.
◉ After-tax Cost of Debt.
Answer: An adjustment of the before-tax cost of debt that considers
the tax deductions on interest expenses. It reflects the actual cost to
a firm for debt financing after benefiting from tax breaks.
◉ Agency Costs.
Answer: Costs that are incurred by the firm when management and
employees of a company do not act in the best interests of
shareholders.
◉ Agency Problem.
Answer: A conflict of interest inherent in relationships where one
party is expected to act in another's best interests, such as between
shareholders and company management.
,◉ Annual Interest Rate.
Answer: The annualized cost of borrowing or the yearly interest rate
charged on a loan or credit balance. Also known as annual
percentage rate (APR).
◉ Annuity.
Answer: A financial arrangement in which a series of equal
payments is made or received at regular intervals over a specified
period of time.
◉ Assets.
Answer: Resources owned by the company that have economic
value.
◉ Auction Markets.
Answer: Financial markets in which buyers and sellers submit
competitive bids and offers, with transactions occurring at prices
that match the highest bid with the lowest offer.
◉ Average Collection Period.
Answer: A type of liquidity ratio that calculates the average number
of days it takes for a company to collect its receivables. Average
Collection Period = Accounts Receivable ÷ Daily Credit Sales.
,◉ Balance Sheet.
Answer: A financial statement that presents a company's financial
position at a specific point in time.
◉ Before-tax Cost of Debt.
Answer: The interest rate on loans or bonds. If a bank provides an
interest rate on a small business loan of 9.5%, then 9.5% is the
before-tax cost of debt.
◉ Board of Directors (BOD).
Answer: A group of individuals elected by a company's shareholders
to oversee the management and make key decisions on corporate
policies and strategy.
◉ Bonds.
Answer: Debt securities issued by corporations or governments to
raise capital, where the issuer agrees to pay back the principal along
with interest on specified dates.
◉ Book Value.
Answer: Literal value or face value.
◉ Business Finance.
, Answer: The area of the business in which 1) financial measures are
used to help management make decisions (ratio analysis), 2)
financial analysts use mathematical models to select what projects
to invest in (capital budgeting), and 3) financial analysts use the cost
of capital to determine whether these projects should be financed
with either debt or equity, and which type of each.
◉ Capital Appreciation.
Answer: When a stock is bought at a lower price than what it is sold.
Subtracting the lower purchase price from the higher sales price is
the appreciation.
◉ Capital Budgeting.
Answer: The process by which businesses evaluate potential
investments to determine if they are worth pursuing. It assesses
projected cash flows, costs, and returns of projects like new
machinery or acquisitions to ensure efficient resource allocation and
profitability.
◉ Capital Structure.
Answer: The mixture of debt and equity that a firm uses to finance
the company.
◉ Cash Ratio.
