WGU D775 – Introduction to Business Finance
Performance Assessment (PA)
Questions with Answers|Guaranteed Pass
,Question 1: What is the primary financial goal of a for-profit corporation?
A. Maximize sales revenue
B. Maximize shareholder wealth
C. Minimize total expenses
D. Maximize market share
Answer: B. Maximize shareholder wealth
Rationale: The primary goal of financial management is to maximize the wealth of
the firm's owners (shareholders), typically measured by the market price of the
stock. Maximizing sales or minimizing costs can conflict with long-term value
creation, and market share alone does not guarantee profitability.
Question 2: Which business form provides owners with limited liability while
allowing profits to be taxed only once, at the owner level?
A. Sole proprietorship
B. General partnership
C. C corporation
D. S corporation / LLC
Answer: D. S corporation / LLC
Rationale: S corporations and LLCs combine limited liability protection with pass-
through (single) taxation. C corporations face double taxation, while sole
proprietorships and general partnerships expose owners to unlimited personal
liability.
Question 3: The agency problem in finance refers to:
A. Conflicts between the firm and its suppliers
B. Conflicts of interest between managers and shareholders
C. Conflicts between competing firms
D. Conflicts between employees and customers
Answer: B. Conflicts of interest between managers and shareholders
Rationale: Agency problems arise when managers (agents) act in their own
interest rather than in the best interest of shareholders (principals), such as
pursuing perks or empire-building instead of maximizing firm value.
Question 4: Which of the following best describes an efficient financial market?
A. A market where prices never change
, B. A market where security prices fully reflect available information
C. A market with no government regulation
D. A market where only institutional investors trade
Answer: B. A market where security prices fully reflect available information
Rationale: Market efficiency means prices rapidly and fully incorporate all
available information, making it difficult to consistently earn abnormal returns
based on that information.
Question 5: A firm's primary market transaction occurs when:
A. Existing shares trade between investors
B. A company issues new securities directly to investors
C. Shares are traded on a stock exchange floor
D. A company repurchases its own shares
Answer: B. A company issues new securities directly to investors
Rationale: Primary market transactions involve the sale of newly issued securities
(such as an IPO) where the issuing firm receives the proceeds. Secondary markets
involve trading of existing securities between investors, generating no new funds
for the firm.
Question 6: Which principle states that a dollar today is worth more than a dollar
received in the future?
A. Diversification
B. Time value of money
C. Risk-return tradeoff
D. Arbitrage
Answer: B. Time value of money
Rationale: The time value of money reflects the idea that money available now
can be invested to earn a return, making it more valuable than the same amount
received later.
Question 7: Which financial statement reports a company's assets, liabilities, and
equity at a specific point in time?
A. Income statement
B. Balance sheet
C. Statement of cash flows
, D. Statement of retained earnings
Answer: B. Balance sheet
Rationale: The balance sheet is a snapshot of financial position at a single point in
time, showing what the firm owns (assets), owes (liabilities), and the owners'
residual claim (equity). The income statement and cash flow statement cover a
period of time.
Question 8: Net working capital is calculated as:
A. Total assets minus total liabilities
B. Current assets minus current liabilities
C. Total revenue minus total expenses
D. Long-term debt minus equity
Answer: B. Current assets minus current liabilities
Rationale: Net working capital measures short-term liquidity by subtracting
current liabilities (due within one year) from current assets (convertible to cash
within one year).
Question 9: A current ratio of 0.8 indicates that a company:
A. Has more current assets than current liabilities
B. Has more current liabilities than current assets
C. Is highly profitable
D. Has no long-term debt
Answer: B. Has more current liabilities than current assets
Rationale: A current ratio below 1.0 means current liabilities exceed current assets,
which may signal potential short-term liquidity problems in meeting obligations as
they come due.
Question 10: Which ratio measures how efficiently a firm uses its assets to
generate sales?
A. Debt-to-equity ratio
B. Total asset turnover ratio
C. Current ratio
D. Price-earnings ratio
Answer: B. Total asset turnover ratio
Performance Assessment (PA)
Questions with Answers|Guaranteed Pass
,Question 1: What is the primary financial goal of a for-profit corporation?
A. Maximize sales revenue
B. Maximize shareholder wealth
C. Minimize total expenses
D. Maximize market share
Answer: B. Maximize shareholder wealth
Rationale: The primary goal of financial management is to maximize the wealth of
the firm's owners (shareholders), typically measured by the market price of the
stock. Maximizing sales or minimizing costs can conflict with long-term value
creation, and market share alone does not guarantee profitability.
Question 2: Which business form provides owners with limited liability while
allowing profits to be taxed only once, at the owner level?
A. Sole proprietorship
B. General partnership
C. C corporation
D. S corporation / LLC
Answer: D. S corporation / LLC
Rationale: S corporations and LLCs combine limited liability protection with pass-
through (single) taxation. C corporations face double taxation, while sole
proprietorships and general partnerships expose owners to unlimited personal
liability.
Question 3: The agency problem in finance refers to:
A. Conflicts between the firm and its suppliers
B. Conflicts of interest between managers and shareholders
C. Conflicts between competing firms
D. Conflicts between employees and customers
Answer: B. Conflicts of interest between managers and shareholders
Rationale: Agency problems arise when managers (agents) act in their own
interest rather than in the best interest of shareholders (principals), such as
pursuing perks or empire-building instead of maximizing firm value.
Question 4: Which of the following best describes an efficient financial market?
A. A market where prices never change
, B. A market where security prices fully reflect available information
C. A market with no government regulation
D. A market where only institutional investors trade
Answer: B. A market where security prices fully reflect available information
Rationale: Market efficiency means prices rapidly and fully incorporate all
available information, making it difficult to consistently earn abnormal returns
based on that information.
Question 5: A firm's primary market transaction occurs when:
A. Existing shares trade between investors
B. A company issues new securities directly to investors
C. Shares are traded on a stock exchange floor
D. A company repurchases its own shares
Answer: B. A company issues new securities directly to investors
Rationale: Primary market transactions involve the sale of newly issued securities
(such as an IPO) where the issuing firm receives the proceeds. Secondary markets
involve trading of existing securities between investors, generating no new funds
for the firm.
Question 6: Which principle states that a dollar today is worth more than a dollar
received in the future?
A. Diversification
B. Time value of money
C. Risk-return tradeoff
D. Arbitrage
Answer: B. Time value of money
Rationale: The time value of money reflects the idea that money available now
can be invested to earn a return, making it more valuable than the same amount
received later.
Question 7: Which financial statement reports a company's assets, liabilities, and
equity at a specific point in time?
A. Income statement
B. Balance sheet
C. Statement of cash flows
, D. Statement of retained earnings
Answer: B. Balance sheet
Rationale: The balance sheet is a snapshot of financial position at a single point in
time, showing what the firm owns (assets), owes (liabilities), and the owners'
residual claim (equity). The income statement and cash flow statement cover a
period of time.
Question 8: Net working capital is calculated as:
A. Total assets minus total liabilities
B. Current assets minus current liabilities
C. Total revenue minus total expenses
D. Long-term debt minus equity
Answer: B. Current assets minus current liabilities
Rationale: Net working capital measures short-term liquidity by subtracting
current liabilities (due within one year) from current assets (convertible to cash
within one year).
Question 9: A current ratio of 0.8 indicates that a company:
A. Has more current assets than current liabilities
B. Has more current liabilities than current assets
C. Is highly profitable
D. Has no long-term debt
Answer: B. Has more current liabilities than current assets
Rationale: A current ratio below 1.0 means current liabilities exceed current assets,
which may signal potential short-term liquidity problems in meeting obligations as
they come due.
Question 10: Which ratio measures how efficiently a firm uses its assets to
generate sales?
A. Debt-to-equity ratio
B. Total asset turnover ratio
C. Current ratio
D. Price-earnings ratio
Answer: B. Total asset turnover ratio
