WGU D775 - Assessment Study Guide
Part 1 Questions and Answers
1. Which principle guides business finance to optimize resource use?:
Risk-return tradeoff
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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, 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?: Expanding to a new market
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14
Part 1 Questions and Answers
1. Which principle guides business finance to optimize resource use?:
Risk-return tradeoff
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?: Expanding to a new market
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14
