D775 – ACTUAL EXAM
QUESTIONS AND CORRECT
ANSWERS LATEST UPDATE
2026/2027 GRADED A+ .
1. Which principle guides business finance to optimize resource use✔✔ correct answ Risk-return tradeott
2. Which activity describes capital raising in business finance✔✔ correct answ Securing funding for business operations and
projects
3. Which finance activity involves the creation, circulation, and management of money✔✔ correct answ Setting monetary
policy
4. What is common stock✔✔ correct answ A share of ownership in a firm with voting rights
5. What is a characteristic of preferred stock✔✔ correct answ Fixed dividends
6. What is the purpose of bonds from the perspective of issuers✔✔ correct answ To raise capital without diluting ownership
7. Which type of bonds are considered junk bonds✔✔ correct answ Speculative bonds
8. Which type of investment vehicle is uniquely used for retirement savings✔✔ correct answ -
401k plans
9. What is true about options in financial derivatives✔✔ correct answ 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✔✔ correct answ By making large-scale investments that reduce transaction costs
11. What is an initial public offering (IPO)✔✔ correct answ 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✔✔ correct answ The project is not profitable
and should be rejected.
13. Which project type would likely require a capital budgeting decision✔✔ correct answ Expand-ing to a new marketA
real estate development company is evaluating a proposed residential project. After conducting a capital
budgeting analysis, the company calculates a Net Present Value (NPV) of $500,000 for the project.: The project should be
undertaken because it is expected to generate more value than costs.
14. What is a limitation of the payback method when evaluating a long-term investment✔✔ correct answ It can be
complicated to apply to a long-term investment.
15. Why might a company be hesitant to raise new debt capital✔✔ correct answ Taking on additional debt could increase the
company's default risk and raise its cost of capital, making future borrowing more expensive.
16. A regional food and beverage company faces strong competitive pressure in a rapidly consolidating
industry. Why might this company need new capi-tal✔✔ correct answ To fund expansion and new product development
17. A mid-sized manufacturing company plans to expand its production capac-ity to meet growing demand. The
company is considering different funding options to finance this expansion.
Which situation might cause the company to use retained earnings to fund an expansion✔✔ correct answ When it prefers to
use internal funds instead of seeking external funding options
18. Why might a high beta increase the cost of equity✔✔ correct answ It indicates higher risk, which requires higher returns.
19. A construction firm is entirely financed through loans and bonds rather than equity. To evaluate new
investment opportunities, the firm must de-termine its cost of capital. What can be determined about the
firm's cost of capital✔✔ correct answ It is equal to the after-tax cost of debt, as no equity financing costs are involved.
20. How is the cost of capital typically measured✔✔ correct answ As a percentage return
21. A small business is evaluating two projects.
QUESTIONS AND CORRECT
ANSWERS LATEST UPDATE
2026/2027 GRADED A+ .
1. Which principle guides business finance to optimize resource use✔✔ correct answ Risk-return tradeott
2. Which activity describes capital raising in business finance✔✔ correct answ Securing funding for business operations and
projects
3. Which finance activity involves the creation, circulation, and management of money✔✔ correct answ Setting monetary
policy
4. What is common stock✔✔ correct answ A share of ownership in a firm with voting rights
5. What is a characteristic of preferred stock✔✔ correct answ Fixed dividends
6. What is the purpose of bonds from the perspective of issuers✔✔ correct answ To raise capital without diluting ownership
7. Which type of bonds are considered junk bonds✔✔ correct answ Speculative bonds
8. Which type of investment vehicle is uniquely used for retirement savings✔✔ correct answ -
401k plans
9. What is true about options in financial derivatives✔✔ correct answ 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✔✔ correct answ By making large-scale investments that reduce transaction costs
11. What is an initial public offering (IPO)✔✔ correct answ 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✔✔ correct answ The project is not profitable
and should be rejected.
13. Which project type would likely require a capital budgeting decision✔✔ correct answ Expand-ing to a new marketA
real estate development company is evaluating a proposed residential project. After conducting a capital
budgeting analysis, the company calculates a Net Present Value (NPV) of $500,000 for the project.: The project should be
undertaken because it is expected to generate more value than costs.
14. What is a limitation of the payback method when evaluating a long-term investment✔✔ correct answ It can be
complicated to apply to a long-term investment.
15. Why might a company be hesitant to raise new debt capital✔✔ correct answ Taking on additional debt could increase the
company's default risk and raise its cost of capital, making future borrowing more expensive.
16. A regional food and beverage company faces strong competitive pressure in a rapidly consolidating
industry. Why might this company need new capi-tal✔✔ correct answ To fund expansion and new product development
17. A mid-sized manufacturing company plans to expand its production capac-ity to meet growing demand. The
company is considering different funding options to finance this expansion.
Which situation might cause the company to use retained earnings to fund an expansion✔✔ correct answ When it prefers to
use internal funds instead of seeking external funding options
18. Why might a high beta increase the cost of equity✔✔ correct answ It indicates higher risk, which requires higher returns.
19. A construction firm is entirely financed through loans and bonds rather than equity. To evaluate new
investment opportunities, the firm must de-termine its cost of capital. What can be determined about the
firm's cost of capital✔✔ correct answ It is equal to the after-tax cost of debt, as no equity financing costs are involved.
20. How is the cost of capital typically measured✔✔ correct answ As a percentage return
21. A small business is evaluating two projects.
