WGU D076 Finance By ME (Module Quizzes) Questions
with verified answers
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?
a) Flexibility
b) Trend analysis
c) Cross-sectional analysis
d) Progress measurement Ans✓✓✓-d) Progress measurement
You are comparing the company's ratio to the goal and checking how the
company is progressing toward the goal.
A company is considering five projects that are not mutually exclusive. However,
the company does not have enough money to do all of them. In order to prioritize
projects that fit within the company's budget, which capital budgeting method
should be used?
a) Internal rate of return (IRR)
b) Comparing the initial outlay to start with the biggest project
c) Profitability index (PI)
d) Net present value (NPR) Ans✓✓✓-c) Profitability index (PI)
,The PI should be used first to compare the projects and then to rank them to
maximize the value of the firm.
A company is trying to decide which of four projects to invest in.
Project 1 has an IRR of 14% and an NPV of $54,000.
Project 2 has an IRR of 11% and an NPV of $67,000.
Project 3 has an IRR of 9% and an NPV of $60,000.
Project 4 has an IRR of 13% and an NPV of $47,000.
If the company can do only one project, which project should it choose to add the
greatest value to the firm?
a) Project 2
b) Project 3
c) Project 1
d) Project 4 Ans✓✓✓-a) Project 2
The project with the highest NPV will bring the most value to the company.
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?
a) Push the company to pay dividends to the shareholders.
, b) Set a strict covenant that the company cannot easily achieve.
c) Let the company take the mortgage loan because of its long partnership with
the bank.
d) Let the company manipulate accounting procedures. Ans✓✓✓-b) Set a strict
covenant that the company cannot easily achieve.
By setting a strict covenant, there is a risk that the company may not meet its
obligation, which would deter the company from taking on risky projects.
A potential project to expand the size of an apartment complex will cost
$100,000. Its calculated net present value is $5,000. Given this information, which
statement is correct?
a) The project should be accepted because it has a positive IRR.
b) The project should be accepted because it has a positive NPV.
c) The project should be rejected because it has a negative NPV.
d) The project should be rejected because it has a negative IRR. Ans✓✓✓-b) The
project should be accepted because it has a positive NPV.
Because the NPV is positive, the project should be accepted.
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?
a) It may indicate a decreasing unemployment rate along with higher wages.
with verified answers
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?
a) Flexibility
b) Trend analysis
c) Cross-sectional analysis
d) Progress measurement Ans✓✓✓-d) Progress measurement
You are comparing the company's ratio to the goal and checking how the
company is progressing toward the goal.
A company is considering five projects that are not mutually exclusive. However,
the company does not have enough money to do all of them. In order to prioritize
projects that fit within the company's budget, which capital budgeting method
should be used?
a) Internal rate of return (IRR)
b) Comparing the initial outlay to start with the biggest project
c) Profitability index (PI)
d) Net present value (NPR) Ans✓✓✓-c) Profitability index (PI)
,The PI should be used first to compare the projects and then to rank them to
maximize the value of the firm.
A company is trying to decide which of four projects to invest in.
Project 1 has an IRR of 14% and an NPV of $54,000.
Project 2 has an IRR of 11% and an NPV of $67,000.
Project 3 has an IRR of 9% and an NPV of $60,000.
Project 4 has an IRR of 13% and an NPV of $47,000.
If the company can do only one project, which project should it choose to add the
greatest value to the firm?
a) Project 2
b) Project 3
c) Project 1
d) Project 4 Ans✓✓✓-a) Project 2
The project with the highest NPV will bring the most value to the company.
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?
a) Push the company to pay dividends to the shareholders.
, b) Set a strict covenant that the company cannot easily achieve.
c) Let the company take the mortgage loan because of its long partnership with
the bank.
d) Let the company manipulate accounting procedures. Ans✓✓✓-b) Set a strict
covenant that the company cannot easily achieve.
By setting a strict covenant, there is a risk that the company may not meet its
obligation, which would deter the company from taking on risky projects.
A potential project to expand the size of an apartment complex will cost
$100,000. Its calculated net present value is $5,000. Given this information, which
statement is correct?
a) The project should be accepted because it has a positive IRR.
b) The project should be accepted because it has a positive NPV.
c) The project should be rejected because it has a negative NPV.
d) The project should be rejected because it has a negative IRR. Ans✓✓✓-b) The
project should be accepted because it has a positive NPV.
Because the NPV is positive, the project should be accepted.
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?
a) It may indicate a decreasing unemployment rate along with higher wages.
