WGU D076 FINANCE SKILLS FOR
MANAGERS - ADVANCED
COMPREHENSIVE ASSESSMENT
QUESTIONS AND ANSWERS
1. Which of the following describes the ‘Agency Problem’ in a corporate finance context?
A. The disagreement between the board of directors and the firm’s creditors.
B. The difficulty in finding a reputable marketing agency for product launches.
C. The conflict of interest between a firm’s management and its shareholders.
D. The cost associated with hiring government agencies for regulatory compliance.
Answer: C
Conceptual Explanation: The agency problem occurs when managers (agents) act in their
own interest rather than in the best interest of the shareholders (principals).
2. A firm has a Current Ratio of 1.2 and a Quick Ratio of 0.8. What does this most likely
suggest about the firm’s asset structure?
A. The firm has a large portion of its current assets tied up in inventory.
B. The firm has a significant amount of cash and marketable securities.
C. The firm is highly leveraged with long-term debt.
,D. The firm’s accounts receivable are being collected faster than industry average.
Answer: A
Conceptual Explanation: The Quick Ratio excludes inventory from current assets. A
significant drop from 1.2 (Current) to 0.8 (Quick) indicates that inventory comprises a
substantial part of current assets.
3. Under the indirect method of preparing the Statement of Cash Flows, how is an increase in
Accounts Receivable handled?
A. It is subtracted from net income in the operating activities section.
B. It is added to net income in the operating activities section.
C. It is recorded as an inflow in the investing activities section.
D. It is recorded as an outflow in the financing activities section.
Answer: A
Conceptual Explanation: An increase in Accounts Receivable represents revenue
recognized but not yet collected in cash, thus it must be subtracted from net income to
reach cash flow from operations.
4. Which of the following capital budgeting techniques is most likely to lead to multiple rates
of return for a single project?
A. Net Present Value (NPV)
B. Payback Period
, C. Internal Rate of Return (IRR)
D. Profitability Index
Answer: C
Conceptual Explanation: If a project has non-conventional cash flows (cash flow signs
change more than once), the IRR calculation can result in multiple mathematical solutions.
5. How does an increase in the marginal tax rate affect a firm’s Weighted Average Cost of
Capital (WACC), assuming all other factors remain constant?
A. WACC will increase because tax expenses are higher.
B. WACC will increase because investors will demand a higher pre-tax return.
C. WACC will remain unchanged because equity cost is not tax-deductible.
D. WACC will decrease because the after-tax cost of debt decreases.
Answer: D
Conceptual Explanation: Interest on debt is tax-deductible. A higher tax rate increases the
value of the tax shield, lowering the after-tax cost of debt and thus lowering the WACC.
6. If the Federal Reserve increases interest rates, what is the most likely impact on the price
of existing corporate bonds?
A. Bond prices will increase to match the new market yield.
B. Only short-term bond prices will increase.
C. Bond prices will remain stable, but the coupon rate will increase.
MANAGERS - ADVANCED
COMPREHENSIVE ASSESSMENT
QUESTIONS AND ANSWERS
1. Which of the following describes the ‘Agency Problem’ in a corporate finance context?
A. The disagreement between the board of directors and the firm’s creditors.
B. The difficulty in finding a reputable marketing agency for product launches.
C. The conflict of interest between a firm’s management and its shareholders.
D. The cost associated with hiring government agencies for regulatory compliance.
Answer: C
Conceptual Explanation: The agency problem occurs when managers (agents) act in their
own interest rather than in the best interest of the shareholders (principals).
2. A firm has a Current Ratio of 1.2 and a Quick Ratio of 0.8. What does this most likely
suggest about the firm’s asset structure?
A. The firm has a large portion of its current assets tied up in inventory.
B. The firm has a significant amount of cash and marketable securities.
C. The firm is highly leveraged with long-term debt.
,D. The firm’s accounts receivable are being collected faster than industry average.
Answer: A
Conceptual Explanation: The Quick Ratio excludes inventory from current assets. A
significant drop from 1.2 (Current) to 0.8 (Quick) indicates that inventory comprises a
substantial part of current assets.
3. Under the indirect method of preparing the Statement of Cash Flows, how is an increase in
Accounts Receivable handled?
A. It is subtracted from net income in the operating activities section.
B. It is added to net income in the operating activities section.
C. It is recorded as an inflow in the investing activities section.
D. It is recorded as an outflow in the financing activities section.
Answer: A
Conceptual Explanation: An increase in Accounts Receivable represents revenue
recognized but not yet collected in cash, thus it must be subtracted from net income to
reach cash flow from operations.
4. Which of the following capital budgeting techniques is most likely to lead to multiple rates
of return for a single project?
A. Net Present Value (NPV)
B. Payback Period
, C. Internal Rate of Return (IRR)
D. Profitability Index
Answer: C
Conceptual Explanation: If a project has non-conventional cash flows (cash flow signs
change more than once), the IRR calculation can result in multiple mathematical solutions.
5. How does an increase in the marginal tax rate affect a firm’s Weighted Average Cost of
Capital (WACC), assuming all other factors remain constant?
A. WACC will increase because tax expenses are higher.
B. WACC will increase because investors will demand a higher pre-tax return.
C. WACC will remain unchanged because equity cost is not tax-deductible.
D. WACC will decrease because the after-tax cost of debt decreases.
Answer: D
Conceptual Explanation: Interest on debt is tax-deductible. A higher tax rate increases the
value of the tax shield, lowering the after-tax cost of debt and thus lowering the WACC.
6. If the Federal Reserve increases interest rates, what is the most likely impact on the price
of existing corporate bonds?
A. Bond prices will increase to match the new market yield.
B. Only short-term bond prices will increase.
C. Bond prices will remain stable, but the coupon rate will increase.
