WGU D076 FINANCIAL SKILLS FOR
MANAGERS EXAM PREP QUESTIONS
AND ANSWERS
1. Which component of the DuPont equation specifically measures a company’s efficiency in
using its assets to generate sales?
A. Total Asset Turnover
B. Equity Multiplier
C. Net Profit Margin
D. Return on Equity
Answer: A
Conceptual Explanation: Total Asset Turnover (Sales/Assets) measures how efficiently a
firm uses its assets to generate revenue. Profit Margin measures profitability per dollar of
sales, and the Equity Multiplier measures financial leverage.
2. An analyst is evaluating a project with an initial cost of $50,000 and expected cash flows of
$20,000 for three years. If the WACC is 10%, what is the Profitability Index (PI)?
A. 0.99
,B. 1.20
C. 1.15
D. 0.85
Answer: A
Conceptual Explanation: PI = PV of future cash flows / Initial Investment. PV = 20,000 *
[(1-(1.10^-3))/0.10] = 49,737. PI = 49,,000 = 0.9947, which rounds to 0.99. Since it
is less than 1, the project should be rejected.
3. Under the accrual basis of accounting, when should a company recognize revenue for a
long-term service contract paid in advance?
A. When the cash is received.
B. At the end of the fiscal year regardless of progress.
C. When the service is performed over time.
D. When the contract is signed.
Answer: C
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the performance obligation is satisfied, not necessarily
when cash is received.
, 4. What is the impact on a company’s Cash Conversion Cycle (CCC) if it increases its Days Sales
Outstanding (DSO) while keeping other factors constant?
A. The CCC will decrease.
B. The CCC will increase.
C. The CCC will remain unchanged.
D. The CCC will fluctuate unpredictably.
Answer: B
Conceptual Explanation: CCC = DIO + DSO - DPO. Since DSO represents the time it takes to
collect receivables, an increase in DSO adds to the time cash is tied up, thereby increasing
the CCC.
5. Which of the following would be classified as a financing activity on the Statement of Cash
Flows?
A. Purchase of new manufacturing equipment.
B. Issuance of common stock to investors.
C. Payment of interest on a long-term loan.
D. Sale of inventory for cash.
Answer: B
MANAGERS EXAM PREP QUESTIONS
AND ANSWERS
1. Which component of the DuPont equation specifically measures a company’s efficiency in
using its assets to generate sales?
A. Total Asset Turnover
B. Equity Multiplier
C. Net Profit Margin
D. Return on Equity
Answer: A
Conceptual Explanation: Total Asset Turnover (Sales/Assets) measures how efficiently a
firm uses its assets to generate revenue. Profit Margin measures profitability per dollar of
sales, and the Equity Multiplier measures financial leverage.
2. An analyst is evaluating a project with an initial cost of $50,000 and expected cash flows of
$20,000 for three years. If the WACC is 10%, what is the Profitability Index (PI)?
A. 0.99
,B. 1.20
C. 1.15
D. 0.85
Answer: A
Conceptual Explanation: PI = PV of future cash flows / Initial Investment. PV = 20,000 *
[(1-(1.10^-3))/0.10] = 49,737. PI = 49,,000 = 0.9947, which rounds to 0.99. Since it
is less than 1, the project should be rejected.
3. Under the accrual basis of accounting, when should a company recognize revenue for a
long-term service contract paid in advance?
A. When the cash is received.
B. At the end of the fiscal year regardless of progress.
C. When the service is performed over time.
D. When the contract is signed.
Answer: C
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the performance obligation is satisfied, not necessarily
when cash is received.
, 4. What is the impact on a company’s Cash Conversion Cycle (CCC) if it increases its Days Sales
Outstanding (DSO) while keeping other factors constant?
A. The CCC will decrease.
B. The CCC will increase.
C. The CCC will remain unchanged.
D. The CCC will fluctuate unpredictably.
Answer: B
Conceptual Explanation: CCC = DIO + DSO - DPO. Since DSO represents the time it takes to
collect receivables, an increase in DSO adds to the time cash is tied up, thereby increasing
the CCC.
5. Which of the following would be classified as a financing activity on the Statement of Cash
Flows?
A. Purchase of new manufacturing equipment.
B. Issuance of common stock to investors.
C. Payment of interest on a long-term loan.
D. Sale of inventory for cash.
Answer: B
