WGU D076 Objective Assessment (Latest 2024/ 2025 Update) Finance Skills for Managers| Questions and Verified Answers| 100% Correct| Grade A

WGU D076 Objective Assessment (Latest 2024/ 2025 Update) Finance Skills for Managers| Questions and Verified Answers| 100% Correct| Grade A About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an interest rate of 3.13%, while the 10-year Treasury note has an interest rate of 2.28%. What does this information indicate about the future economy? Correct Answer: It may indicate an economic downturn. Which term reflects a person's beliefs about right and wrong, good and bad, or just and unjust? Correct Answer: Moral What characterizes an ethical action? Correct Answer: An ethical action is based on accepted standards of conduct. Lucas is a financial advisor working for Bullzai, Inc. He is faced with a dilemma. Bullzai has started changing its practices in order to increase profit. As a financial advisor, he is now supposed to suggest to clients to invest in portfolios that will not do as well as the portfolios that Bullzai is invested in. This is an accepted practice done by other businesses in the industry, and it complies with all standards set by the government. However, Lucas knows that this practice is not in his clients' best interest. What type of dilemma is Lucas facing? Correct Answer: Moral Which type of error would result in a set repercussion or penalty given by the government? Correct Answer: Legal Nora is an investment manager, which means that she is paid to invest other people's money. To meet her goal for the month, she is seeking to invest money from clients in an investment that is risky but potentially has a higher return. What about this situation represents an ethical dilemma? Correct Answer: Nora is considering investing in a risky asset just to meet her monthly goal. What are the effects of attempting to maximize shareholder value for a business in an unethical way? Correct Answer: It often leads to decreased shareholder value for the business. Endothon Company has decided to move its production from the United States to a foreign country. Which situation below would constitute an un- ethical action by the company? Correct Answer: Saving money by paying inadequate wages to workers overseas Why would bondholders set bond contracts that are very strict to deter the company from taking on risky projects? Correct Answer: Bondholders are primarily interested in making sure they will be paid back. Which kind of projects are bondholders interested in? Correct Answer: Safe projects with a higher chance of providing sufficient compensation Which scenario is an example of an agency problem? Correct Answer: A manager purchases a company car and allocates it as a company expense. How can agency costs be mitigated? Correct Answer: Aligning managers' interests with shareholders' interests What is the third step in finding a solution to an ethical dilemma? Correct Answer: Consider all stakeholders involved What does the term legal describe? Correct Answer: An action that is in accordance with the laws and rules set by an authority. Jack is a personal financial advisor. He is with a new client, and the client is asking him what he recommends for her portfolio. Jack knows that his firm's investment product performed well last year, but its performance changes from year to year—some years it is better than the market, and some years it is not. Also, the fee to invest in the product is higher than the fee to invest in a market index fund. If Jack sells his company's investment product, the customer's loyalty to the company is doubled. Which actions should Jack take? Correct Answer: Give a personal recommendation of the company's product while explaining its performance relative to the market over the past several years. Why might a manager manipulate accounting procedures? Correct Answer: To make the company's performance look good Which situation is an example of an agency problem? Correct Answer: Managers follow their own interests instead of the owners' interest. A company is trying to finance a project with a mortgage loan from a bank. The company's assessment of the project indicates that the company may experience several years of loss until the project becomes profitable. This means that the company might lose its ability to pay back the loan and the interest on the mortgage. What action might the bank take to protect its interest? Correct Answer: Set a strict covenant that the company cannot easily achieve. Which statement correctly contextualizes what a return is? Correct Answer: A return is the gain or loss on an investment over some period of time. What is an expected return? Correct Answer: A hypothesized estimate of future returns under different scenarios based on expectational data In 1980, the inflation rate was 5% and a particular investment gave a return of 15%. In 2010, the inflation rate was 5% and the same investment gave a return of 12%. In which year did stockholders gain greater purchasing power and why? Correct Answer: 1980 because the real rate was higher than in 2010 The word risk is used in many different contexts. How is risk defined in finance? Correct Answer: The possibility that the realized or actual return will differ from the expected return What makes market risk different from firm-specific risk? Correct Answer: Market risk can- not be diversified away, and firm-specific risk can. Which statement accurately describes firm-specific risk? Correct Answer: Firm-specific risk is the risk associated with problems that companies may face because of lawsuits, labor problems, or management decisions, among other factors. Which phrase accurately depicts what interest rate risk is? Correct Answer: An example of market risk where the value of a bond is affected by changes in interest rates Why would a company or individual want to retain risk? Correct Answer: Both companies and individuals retain risk when they believe that the cost of pursuing an activity is less than the alternative. Which type of risk can be reduced by adding a variety of different assets into a portfolio? Correct Answer: Firm-specific risk Which situation is a real-life example of risk transfer? Correct Answer: Buying home insur- ance—risk is transferred from the policyholder to the insurer How is risk separation different from diversification? Correct Answer: Risk separation in- volves dispersing assets geographically instead of concentrating them in one loca- tion. What tends to happen to the risk of an investment that offers a higher return? Correct Answer: The risk is higher for an investment with a higher return. How does the amount of time affect the risk associated with different investment vehicles? Correct Answer: Stock investments are more risky over a shorter period of time than over a longer period of time. Which statement correctly identifies the relationship between systematic risk and different types of firms? Correct Answer: Utility companies have low systematic risk because as the market moves up and down, their level of risk will also move up and down but in a diminished way. What makes the expected return subjective and different from other types of returns? Correct Answer: The expected return is based on expectational data and the probability of different scenarios occurring. What is the name for the process of "spreading" money over many different assets? Correct Answer: Diversification What is default risk? Correct Answer: A firm-specific risk that comes from the probability of a loss resulting from a borrower's failure to repay a contractual obligation A company that produces soap, shampoo, lotion, and other personal care products has recently taken a hit due to a competitor's new product line. The company decides to reduce wages for its labor force to save money while the company focuses on building up its reputation again, but the company's labor force goes on strike to protest the pay cuts. What type of risk does the strike represent? Correct Answer: Idiosyncratic risk Which description below correctly identifies one type of price risk? Correct Answer: Oper- ating risk—depends on the effect of the firm's operating decisions on its operating costs Which statement below is an example of how ratios are used in the field of finance? Correct Answer: A firm's ratios are compared with those of a benchmark peer group to determine the firm's relative strength and performance. Why are ratios considered flexible? Correct Answer: Because they are not regulated and can be changed or invented according to a firm's needs How might calculating financial ratios help shareholders? Correct Answer: Ratios can be used to determine whether a firm is maximizing shareholder wealth. The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in comparison to other similar firms. What is this process called? Correct Answer: Benchmarking Which type of ratio is a current ratio? Correct Answer: liquidity What is the main difference between the current ratio and the quick ratio?- Correct Answer: The current ratio includes inventory in current assets, and the quick ratio does not. The firm Betsy's Books has a market-to-book ratio of 1.2. What does this tell you about the firm? Correct Answer: This firm is expected to grow in the future. What does the net margin measure? Correct Answer: The percent of revenue that is retained as profit for the firm Which of these measures is a component of return on equity? Correct Answer: Net margin Which action increases the return on equity of a firm if all else remains constant? Correct Answer: Increasing debt financing What is a component of the DuPont framework? Correct Answer: Return on assets How can the DuPont framework help a company assess its return on equity? Correct Answer: It allows the company to determine how its abilities to generate profits, manage assets, and use financing contribute to the return on equity. What is one way that a firm can improve its return on equity? Correct Answer: Successfully cutting production costs to boost net margin BigDog and Small Dog are two companies that have an identical return on equity. One difference between the two companies is that BigDog has 40% of assets financed by debt while SmallDog has 100% of assets financed by equity. What can you conclude about BigDog and SmallDog? Correct Answer: SmallDog has a higher ROA than BigDog. Which actions, taken together, will certainly increase a firm's ROE? Correct Answer: De- creasing equity financing and increasing net margin A company currently has a ratio of 1.5 but hopes to improve the ratio to 2 to align more with the industry benchmark. To achieve this goal, costs were cut in production through an investment in efficient equipment, and the company achieved a higher profit margin. If this continues, you are certain that the firm will achieve its goal in two years. What is this an example of? Correct Answer: Progress measurement For what purpose are market ratios used? Correct Answer: To evaluate the current share price of a public firm's stock You are considering starting a new business to sell Widgets in your home- town. You can import the Widgets at a low cost, and you hope to be able to sell them for significantly more. Which ratio can help you calculate how much profit you will earn from the sale of each Widget? (Assume you are only considering the cost of the Widget, not any other operating costs.) Correct Answer: Gross margin What allows an investor to determine which financial activities are con- tributing to changes in the return on equity? Correct Answer: DuPont framework Knowing that you are taking this finance class, a friend asks you about two investment opportunities he is considering. He wants to know which of the firms is using its assets more efficiently to generate sales. Which set of information could help you determine this? Correct Answer: Firm A has an asset turnover of 4, and Firm B has an asset turnover of 2.5. What are the three main uses of cash budgets? Correct Answer: Cash budgets are used to forecast future financial need, aid in performance evaluation, and show when corrective action is needed. What are three principles of budgeting that are important to know before beginning the budgeting process? Correct Answer: Keep records; develop savings, income, and expense strategies; and use a method that meets your needs and objectives When evaluating a company's performance, what can variances on a com- pany's cash budget indicate? Correct Answer: Variances show that certain managers or divisions are not meeting targets. How far into the future do cash budgets usually forecast? Correct Answer: Between one month and one year Why is "put $50 in a savings account each month for Christmas gifts" a better budgeting goal than "save money for Christmas gifts"? Correct Answer: Because it is specific and measurable Why would a monthly mortgage payment be considered a fixed expense? Correct Answer: Because the payment is the same amount each month Which action would help you make your budget more efficient? Correct Answer: Compare your budgeted cash flows to your actual cash flows, and then revise the budget if necessary. What is the correct order of the three steps necessary to create a cash budget? Correct Answer: Determine cash receipts, estimate cash disbursements, create the cash budget Which item is an example of a cash receipt in a personal budget? Correct Answer: A graduation gift of $100 from your grandmother Which item represents an example of a cash disbursement a business might have this month? Correct Answer: A rent check paid and cashed for the warehouse the company uses What three things should be included in a cash budget for a business? Correct Answer: Cash receipts, cash disbursements, and borrowing Which items are considered cash disbursements for a business? Correct Answer: Raw materials, rent, administrative expenses, interest, and selling expenses Why are sales not strictly considered to be the same thing as cash re- ceipts? Correct Answer: Sales include both cash sales and credit sales. What is the main reason why it is important to track and record cash flows? Correct Answer: Tracking your cash flows allows you to recognize where and how your money is spent so you can monitor your cash flows and revise your budget as needed. In what situation might the software method of tracking be preferable to the spreadsheet method of tracking? Correct Answer: When a person has a hard time remembering to record their cash flows and when they prefer to use a card to make purchases What is the purpose of monitoring your cash flows? Correct Answer: Monitoring allows you to evaluate whether your actual cash flows are in line with your goals and to understand when correction or revision is needed. Which processes help you identify and fix problems in your budget? Correct Answer: Mon- itoring your budget allows you to identify problems, and then gradual revision and implementation of new processes allow you to fix those problems. W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also