D076 Finance Skills for Managers OA Final Exam 2026- and
Answers Already Graded A+. 100% Verified Solutions |
Updated per Latest Guidelines | Western Governors University.
- 55 Questions
This comprehensive exam covers core finance skills for managers working within for-profit organizations. Topics
include financial statement analysis, time value of money, capital budgeting, cost of capital, risk and return,
working capital management, leverage, dividend policy, mergers and acquisitions, and international finance. The
exam emphasizes application of concepts through scenario-based and computational questions. It contains 55
multiple-choice questions, each with four distractors and a fully worked rationale that explains why the keyed
answer is correct. Questions are organized into clearly labelled sections that mirror the major content areas of
the course. Targeted learning outcomes include: Analyze financial statements using ratio analysis and DuPont
decomposition.; Evaluate investment opportunities using discounted cash flow methods and resolve conflicts
between NPV and IRR.; Calculate and interpret the weighted average cost of capital and its components.; Assess
security valuation using CAPM and identify mispricing.. Every item has been reviewed for clinical accuracy,
current guidelines, and clarity so that students can study with confidence and self-correct as they work through
the bank. Use it as a high-yield review immediately before the exam, or as a structured practice tool during the
unit - the rationales double as concise teaching notes. The recommended writing time is 3 hours, with a passing
score of 80%. Aligned with Western Governors University (WGU) - aligned with curriculum standards for
accredited US university finance courses. standards and reflects the question style commonly seen on accredited
Section 1: General (Questions 1-55)
1 A firm has a return on equity of 18%, a profit margin of 6%, and an asset turnover
of 1.5. What is its equity multiplier?
A) 1.8
B) 2.0
C) 2.5
D) 3.0
Answer: B
Rationale: Using DuPont identity: ROE = Profit Margin × Asset Turnover × Equity
Multiplier. 18% = 6% × 1.5 × EM -> 0.18 = 0.09 × EM -> EM = 2.0.
2 You receive $1,000 at the beginning of each year for 5 years. If the discount rate is
8%, what is the present value of this annuity due? (Round to nearest dollar.)
A) $3,993
B) $4,000
C) $4,312
D) $4,610
Answer: C
Rationale: PV of ordinary annuity (5 periods, 8%) = $1,000 × 3.9927 = $3,993.
,Multiply by (1+r) for annuity due: $3,993 × 1.08 = $4,312.
3 Two mutually exclusive projects have NPV profiles that cross at a discount rate of
12%. The required rate of return is 10%. Project A has a higher NPV at 10%,
while Project B has a higher IRR. Which project should be chosen and why?
A) Project A because it maximizes shareholder value.
B) Project B because it has a higher IRR.
C) Neither project is acceptable.
D) Both projects are acceptable.
Answer: A
Rationale: When NPV and IRR conflict for mutually exclusive projects, NPV is the
direct measure of value creation. At the required return of 10% (below crossover
rate), Project A's higher NPV indicates it adds more value.
4 A firm's target capital structure is 40% debt, 10% preferred stock, and 50%
common equity. The after-tax cost of debt is 5%, cost of preferred is 8%, and cost
of equity is 12%. The tax rate is 30%. What is the WACC?
A) 8.2%
B) 8.8%
C) 9.4%
D) 10.0%
Answer: B
Rationale: WACC = w_d * r_d(1-T) + w_ps * r_ps + w_e * r_e = 0.4*5% + 0.1*8%
+ 0.5*12% = 2% + 0.8% + 6% = 8.8%.
5 A stock has a beta of 1.8, the risk-free rate is 3%, and the market risk premium is
5%. If the stock's expected return is 14%, is the stock overvalued, undervalued, or
fairly valued?
A) Overvalued
B) Undervalued
C) Fairly valued
D) Cannot determine
Answer: B
Rationale: CAPM expected return = 3% + 1.8*5% = 12%. The market's required
return is 12%, but the stock is expected to return 14%, offering an abnormal return;
thus, it is undervalued.
, 6 Days inventory outstanding is 45 days, days sales outstanding is 30 days, and days
payable outstanding is 20 days. If days payable outstanding increases to 25 days,
what happens to the cash conversion cycle?
A) Increases by 5 days
B) Decreases by 5 days
C) No change
D) Decreases by 10 days
Answer: B
Rationale: Cash conversion cycle = DIO + DSO - DPO. Original = 45+30-20=55.
New = 45+30-25=50. Decrease of 5 days, freeing up cash.
7 A firm has a degree of operating leverage (DOL) of 3.0. If sales increase by 10%,
what is the percentage change in EBIT? Assume no change in financial leverage.
A) 10%
B) 20%
C) 30%
D) 33%
Answer: C
Rationale: DOL = %”EBIT / %”Sales. So %”EBIT = DOL × %”Sales = 3.0 × 10% =
30%. Operating leverage amplifies the effect of sales changes on EBIT.
8 A firm has net income of $2 million and targets a capital structure of 60% equity
and 40% debt. Its capital budget for the year is $3 million. Using the residual
dividend model, what is the total dividend payout?
A) $0
B) $200,000
C) $800,000
D) $1.2 million
Answer: B
Rationale: Equity needed for capital budget = 60% × $3M = $1.8M. Net income =
$2M. Residual dividend = $2M - $1.8M = $200,000.
9 Company A acquires Company B. Standalone values: A $100 million, B $50
million. The combined firm is valued at $180 million. If A pays $60 million for B,
what is the NPV of the acquisition to A's shareholders?
A) $10 million
B) $20 million
C) $30 million
Answers Already Graded A+. 100% Verified Solutions |
Updated per Latest Guidelines | Western Governors University.
- 55 Questions
This comprehensive exam covers core finance skills for managers working within for-profit organizations. Topics
include financial statement analysis, time value of money, capital budgeting, cost of capital, risk and return,
working capital management, leverage, dividend policy, mergers and acquisitions, and international finance. The
exam emphasizes application of concepts through scenario-based and computational questions. It contains 55
multiple-choice questions, each with four distractors and a fully worked rationale that explains why the keyed
answer is correct. Questions are organized into clearly labelled sections that mirror the major content areas of
the course. Targeted learning outcomes include: Analyze financial statements using ratio analysis and DuPont
decomposition.; Evaluate investment opportunities using discounted cash flow methods and resolve conflicts
between NPV and IRR.; Calculate and interpret the weighted average cost of capital and its components.; Assess
security valuation using CAPM and identify mispricing.. Every item has been reviewed for clinical accuracy,
current guidelines, and clarity so that students can study with confidence and self-correct as they work through
the bank. Use it as a high-yield review immediately before the exam, or as a structured practice tool during the
unit - the rationales double as concise teaching notes. The recommended writing time is 3 hours, with a passing
score of 80%. Aligned with Western Governors University (WGU) - aligned with curriculum standards for
accredited US university finance courses. standards and reflects the question style commonly seen on accredited
Section 1: General (Questions 1-55)
1 A firm has a return on equity of 18%, a profit margin of 6%, and an asset turnover
of 1.5. What is its equity multiplier?
A) 1.8
B) 2.0
C) 2.5
D) 3.0
Answer: B
Rationale: Using DuPont identity: ROE = Profit Margin × Asset Turnover × Equity
Multiplier. 18% = 6% × 1.5 × EM -> 0.18 = 0.09 × EM -> EM = 2.0.
2 You receive $1,000 at the beginning of each year for 5 years. If the discount rate is
8%, what is the present value of this annuity due? (Round to nearest dollar.)
A) $3,993
B) $4,000
C) $4,312
D) $4,610
Answer: C
Rationale: PV of ordinary annuity (5 periods, 8%) = $1,000 × 3.9927 = $3,993.
,Multiply by (1+r) for annuity due: $3,993 × 1.08 = $4,312.
3 Two mutually exclusive projects have NPV profiles that cross at a discount rate of
12%. The required rate of return is 10%. Project A has a higher NPV at 10%,
while Project B has a higher IRR. Which project should be chosen and why?
A) Project A because it maximizes shareholder value.
B) Project B because it has a higher IRR.
C) Neither project is acceptable.
D) Both projects are acceptable.
Answer: A
Rationale: When NPV and IRR conflict for mutually exclusive projects, NPV is the
direct measure of value creation. At the required return of 10% (below crossover
rate), Project A's higher NPV indicates it adds more value.
4 A firm's target capital structure is 40% debt, 10% preferred stock, and 50%
common equity. The after-tax cost of debt is 5%, cost of preferred is 8%, and cost
of equity is 12%. The tax rate is 30%. What is the WACC?
A) 8.2%
B) 8.8%
C) 9.4%
D) 10.0%
Answer: B
Rationale: WACC = w_d * r_d(1-T) + w_ps * r_ps + w_e * r_e = 0.4*5% + 0.1*8%
+ 0.5*12% = 2% + 0.8% + 6% = 8.8%.
5 A stock has a beta of 1.8, the risk-free rate is 3%, and the market risk premium is
5%. If the stock's expected return is 14%, is the stock overvalued, undervalued, or
fairly valued?
A) Overvalued
B) Undervalued
C) Fairly valued
D) Cannot determine
Answer: B
Rationale: CAPM expected return = 3% + 1.8*5% = 12%. The market's required
return is 12%, but the stock is expected to return 14%, offering an abnormal return;
thus, it is undervalued.
, 6 Days inventory outstanding is 45 days, days sales outstanding is 30 days, and days
payable outstanding is 20 days. If days payable outstanding increases to 25 days,
what happens to the cash conversion cycle?
A) Increases by 5 days
B) Decreases by 5 days
C) No change
D) Decreases by 10 days
Answer: B
Rationale: Cash conversion cycle = DIO + DSO - DPO. Original = 45+30-20=55.
New = 45+30-25=50. Decrease of 5 days, freeing up cash.
7 A firm has a degree of operating leverage (DOL) of 3.0. If sales increase by 10%,
what is the percentage change in EBIT? Assume no change in financial leverage.
A) 10%
B) 20%
C) 30%
D) 33%
Answer: C
Rationale: DOL = %”EBIT / %”Sales. So %”EBIT = DOL × %”Sales = 3.0 × 10% =
30%. Operating leverage amplifies the effect of sales changes on EBIT.
8 A firm has net income of $2 million and targets a capital structure of 60% equity
and 40% debt. Its capital budget for the year is $3 million. Using the residual
dividend model, what is the total dividend payout?
A) $0
B) $200,000
C) $800,000
D) $1.2 million
Answer: B
Rationale: Equity needed for capital budget = 60% × $3M = $1.8M. Net income =
$2M. Residual dividend = $2M - $1.8M = $200,000.
9 Company A acquires Company B. Standalone values: A $100 million, B $50
million. The combined firm is valued at $180 million. If A pays $60 million for B,
what is the NPV of the acquisition to A's shareholders?
A) $10 million
B) $20 million
C) $30 million
