WGU D775 - ASSESSMENT STUDY GUIDE PART 1 EXAM QUESTIONS AND ANSWERS
1. Which principle guides business finance to optimize
resource use?: Risk-return tradeott
2. Which activity describes capital raising in business
finance?: Securing funding for business operations and projects
3. Which finance activity involves the creation, circulation,
and management of money?: Setting monetary policy
4. What is common stock?: A share of ownership in a firm with voting
rights
5. What is a characteristic of preferred stock?: Fixed dividends
6. What is the purpose of bonds from the perspective of
issuers?: To raise capital without diluting ownership
7. Which type of bonds are considered junk bonds?:
Speculative bonds
8. Which type of investment vehicle is uniquely used for
retirement savings?: -
401k plans
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14
, 9. What is true about options in financial derivatives?: They give
the buyer the right, but not the obligation, to buy or sell an asset.
10. How do funds benefit from economies of scale?: By making
large-scale investments that reduce transaction costs
11. What is an initial public offering (IPO)?: The first sale of a
company's stock to the public
12. A company is evaluating a project with the
following cash flows: Initial investment:
$100,000
Year 1 cash inflow:
$40,000 Year 2
cash inflow: $50,000
Year 3 cash inflow:
$30,000
The company's cost of capital is 10%.
The calculated NPV is approximately −$3,900.
What does the project's Net Present Value (NPV)
indicate about its profitabili-ty?: The project is not profitable and
should be rejected.
13. Which project type would likely require a capital
budgeting decision?: Expand-ing to a new market
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14
1. Which principle guides business finance to optimize
resource use?: Risk-return tradeott
2. Which activity describes capital raising in business
finance?: Securing funding for business operations and projects
3. Which finance activity involves the creation, circulation,
and management of money?: Setting monetary policy
4. What is common stock?: A share of ownership in a firm with voting
rights
5. What is a characteristic of preferred stock?: Fixed dividends
6. What is the purpose of bonds from the perspective of
issuers?: To raise capital without diluting ownership
7. Which type of bonds are considered junk bonds?:
Speculative bonds
8. Which type of investment vehicle is uniquely used for
retirement savings?: -
401k plans
1/
14
, 9. What is true about options in financial derivatives?: They give
the buyer the right, but not the obligation, to buy or sell an asset.
10. How do funds benefit from economies of scale?: By making
large-scale investments that reduce transaction costs
11. What is an initial public offering (IPO)?: The first sale of a
company's stock to the public
12. A company is evaluating a project with the
following cash flows: Initial investment:
$100,000
Year 1 cash inflow:
$40,000 Year 2
cash inflow: $50,000
Year 3 cash inflow:
$30,000
The company's cost of capital is 10%.
The calculated NPV is approximately −$3,900.
What does the project's Net Present Value (NPV)
indicate about its profitabili-ty?: The project is not profitable and
should be rejected.
13. Which project type would likely require a capital
budgeting decision?: Expand-ing to a new market
2/
14
