WGU D076 OVER 300 QUESTIONS AND ANSWERS LATEST ALREADY GRADED A+;BOTH OA AND FINAL EXAM ARE COMBINED PLUS ALL UNIT TESTS 100% VERIFIED

WGU D076 OVER 300 QUESTIONS AND ANSWERS LATEST ALREADY GRADED A+;BOTH OA AND FINAL EXAM ARE COMBINED PLUS ALL UNIT TESTS 100% VERIFIED What are the main services offered by financial institutions? A. Soliciting charitable donations and then managing the distribution of these funds B. Accepting a wide variety of deposits, offering investment products, providing loans, and brokering financial transactions C. Deciding which assets to invest in to create wealth in the future D. Evaluating sources of funding for a business project, the capital structure of a firm, or actions managers could take to increase the value of the firm Ans- B. Accepting a wide variety of deposits, offering investment products, providing loans, and brokering financial transactions What is the main objective of personal financial goals? A. To maximize stock investments B. To maximize individual utility C. To maximize charity donations D. To maximize owner wealth Ans- B. To maximize individual utility Which task does the financial manager of a firm perform that involves the issuance of new stocks and bonds? A. Making financing decisions B. Managing working capital C. Deciding on accounting standards D. Making investing decisions Ans- A. Making financing decisions Why is understanding the definition of finance important in managing personal finances? A. It helps individuals compare the costs and benefits of an action to determine whether to take that action. B. It helps individuals act ethically with regard to finances. C.It helps individuals understand legal issues related to finance. D. It allows individuals to find an investment with the highest return possible. Ans- A. It helps individuals compare the costs and benefits of an action to determine whether to take that action. In which type of market would a company issue bonds or stocks for the first time? Dealer market Primary market Secondary market Money market Ans- Primary market Which type of financial institution is a mutual fund? Contractual institution Depository institution Investment institution Federal institution Ans- Investment institution Which financial institution specializes in managing and administering retirement funds? Investment banks Mutual funds Pension funds Private equity Ans- Pension funds Which type of economic indicator is the consumer price index? Leading indicator Coincident indicator Forecasting indicator Lagging indicator Ans- Lagging indicator What does the term ethical refer to? The accepted standards of conduct that guide a person's behavior An idea or thing used as a measure, norm, or model in comparative evaluations One's beliefs about right and wrong, good and bad, or just and unjust Following the laws and rules set by an authority Ans- The accepted standards of conduct that guide a person's behavior A company's officers and board of directors are selling their stocks in the firm at higher prices due to false accounting reports that made the stock seem more valuable than it truly was. Which ethical issue is occurring in this situation? Conflict between work and personal affairs Maximizing shareholder value Pursuing individual interest over client interests Agency problem due to conflicting interests Ans- Agency problem due to conflicting interests Which type of interest rate includes interest on interest in addition to interest on the principal? Simple interest Compound interest Yield to maturity Nominal interest rate Ans- Compound interest What is the rate at which the average price level of particular goods and services in an economy increases over a period of time? Opportunity cost Inflation rate Real rate Nominal rate Ans- Inflation rate 1 / 1 You signed an apartment contract today. You are going to pay $1,500 at the beginning of each month for the next 12 months, starting today. What type of cash flows is this contract? A perpetuity Uneven cash flows An ordinary annuity An annuity due Ans- An annuity due What is the term for the return over the entire period that an investor owns a financial security? Real return Required rate of return Expected return Holding period return Ans- Holding period return What is used to measure total risk? Bond ratings Holding period return Beta Standard deviation Ans- Standard deviation What is the term for the risk that changes in interest rates will impact the value of a bond? Default risk Systematic risk Interest rate risk Firm-specific risk Ans- Interest rate risk Which method of ratio analysis looks at a firm's performance over time? Trend analysis Progress measurement Cross-sectional analysis Focus Ans- Trend analysis You are a financial analyst of an investment bank, and you are doing research on equity. You are looking at a book publisher's financial ratios in comparison to its competitors and the industry average. What is this an example of? Trend analysis Cross-sectional analysis Progress measurement Performance evaluation Ans- Cross-sectional analysis Which type of ratio are suppliers interested in? Market ratios Profitability ratios Financing ratios Liquidity ratios Ans- Liquidity ratios What is the ratio that tells you on average how long it takes for a firm to collect accounts receivable? Inventory turnover Average collection period Accounts receivable turnover Fixed asset turnover Ans- Average collection period What does a debt ratio of 40% indicate? It indicates that 40% of total debt is long-term liabilities. It indicates that 40% of assets are financed by equity. It indicates that 40% of assets are financed by debt. It indicates that 40% of fixed assets are financed by debt. Ans- It indicates that 40% of assets are financed by debt. What is operating margin useful for? Understanding production cost efficiency Identifying how efficiently firms are using their assets to generate sales Assessing whether a firm can meet short-term obligations without raising external capital Comparing the profitability of firms with different capital structures Ans- Comparing the profitability of firms with different capital structures What does an average collection period of 70 tell you? On average, a firm takes 70 days to pay accounts payable. On average, a firm turns over its accounts receivable 70 times a year. On average, a firm takes 70 days to collect accounts receivable. On average, a firm takes 70 days to turn over its inventory. Ans- On average, a firm takes 70 days to collect accounts receivable. What does high inventory turnover relative to the industry and competitors indicate? The firm has mastered its asset use efficiency to generate sales. The firm does not have the ability to meet short-term obligations. The firm does not hold enough inventory and is making its customers wait longer to receive their purchased goods. The firm's production and operation costs are too high. Ans- The firm does not hold enough inventory and is making its customers wait longer to receive their purchased goods. What is the difference between return on assets (ROA) and return on equity (ROE)? ROE considers the capital structure of a company, while ROA does not. ROA considers the liquidity of a company, while ROE does not. ROE considers the profitability of a firm, while ROA does not. ROA considers asset use efficiency, while ROE does not. Ans- ROE considers the capital structure of a company, while ROA does not. MiniCo recently spun off of BigCo. Both companies have the same leverage and asset turnover ratios, but MiniCo is underperforming on its return on equity to shareholders. If MiniCo would like to improve its return on equity, which action would help? Reduce asset efficiency by idling some of its operating plants. Pay off a significant portion of its debt. Perform market-to-book analysis to determine if the trading value of its equity is undervalued. Reduce costs to improve its overall profitability. Ans- Reduce costs to improve its overall profitability. Jerry wants to begin budgeting his money. What are three principles that he should know before beginning the budgeting process? Track expenses categorically, use the most updated method of budgeting, and eliminate consumer debt. Make eliminating consumer debt a priority, only use the budgeting strategies that are approved by GAAP, and track expenses categorically. Know yourself; transfer long-term debt to short-term debt; and develop savings, expense, and income strategies. Keep records; understand the key areas of savings, expenses, and income; and eliminate consumer debt. Ans- Keep records; understand the key areas of savings, expenses, and income; and eliminate consumer debt. What are the three things one must determine before making a personal budget? Expenses, interest payments, and savings Tax liabilities, expenses, and income Liabilities, income, and expenses Income, expenses, and savings Ans- Income, expenses, and savings A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales. Why would the firm receive $10,000 less cash than its monthly sales? Because the firm purchased inventory on credit this month Because the firm paid cash for inventory purchased Because the firm paid down $10,000 on a loan Because the firm did not make all sales on cash Ans- Because the firm did not make all sales on cash What three things should an individual or company be doing so that their budget is effective and so that they are on track to meet their financial goals? Monitor cash flows, reduce variable costs, and track expenses Revise the budget, categorize investments, and track income Track cash flows, monitor cash flows, and revise the budget Reduce variable costs, account for income, and monitor outstanding loans Ans- Track cash flows, monitor cash flows, and revise the budget What is the envelope method of budgeting? Using a spreadsheet to track both your digital and physical expenditures of cash during the month Withdrawing cash at the beginning of the period and then allowing only a certain amount to be available for each category of spending Paying all expenses during the month by check through the physical mailing system to ensure that obligations are met in a timely manner Tracking your credit and debit expenditures by updating and categorizing purchases that appear on your bank statement Ans- Withdrawing cash at the beginning of the period and then allowing only a certain amount to be available for each category of spending What are long-term financial forecasts used for? Cash budgeting Determining short-term operating needs Developing savings, income, and expense strategies Making investment and financing decisions Ans- Making investment and financing decisions Which type of account does not vary with sales and is left to management's discretion? Fixed assets accounts Accounts receivable accounts Spontaneous accounts Non-spontaneous accounts Ans- Non-spontaneous accounts Which account is a discretionary account? Fixed assets Accounts receivable Notes payable Cash Ans- Notes payable What is the rate at which a firm can grow without issuing new equity? Discount rate Internal rate of return Sustainable growth rate Retention rate Ans- Sustainable growth rate Why do fixed assets increase as a lump sum instead of in proportion to sales growth? A firm needs more fixed assets only when the DFN is negative. A firm purchases fixed assets in proportion to sales. A firm will outsource production until it can use an entire production facility. A firm must purchase an entire fixed asset rather than just the portion needed to increase production. Ans- A firm must purchase an entire fixed asset rather than just the portion needed to increase production. What would an analyst predict for a potential investment with an NPV of zero? The project would add value to the firm. The project would earn exactly the rate of return required by the firm. The project would take away value from the firm, but only a small amount. The profitability index would also be equal to zero. Ans- The project would earn exactly the rate of return required by the firm. A financial analyst for the company Bobby's Books has been asked to evaluate a potential investment using a method that considers the time value of money. Is there more than one way to do this? Yes, the analyst could use both the NPV and the IRR. Yes, the analyst could use the current ratio and could compare cost of capital rates. No, there are no valuation methods that take into account the time value of money. No, the analyst could only use cash budgeting to evaluate the project. Ans- Yes, the analyst could use both the NPV and the IRR. If two projects are mutually exclusive, which decision-making criterion will help you make the best decision about which project to accept? Initial outlay (IO) Internal rate of return (IRR) Profitability index (PI) Net present value (NPV) Ans- Net present value (NPV) Why might a firm prefer to raise debt capital through bonds instead of stocks? Bonds have no expiration date. Bonds do not require a firm to give up any ownership. Bonds take advantage of upside potential. Bonds do not require the firm to pay back its loan. Ans- Bonds do not require a firm to give up any ownership. 0 / 1 Why is it appropriate to calculate the value of a bond in the same way that the present value of an annuity is calculated? Bonds pay a coupon every six months, pay a constant coupon amount, and have a maturity date. The cash flows that come from owning a bond grow at a constant rate every year, and the payments continue forever. Even though bonds have a fixed length, the cash flows differ each year. A bond is a fixed amount paid each period forever to compensate investors. Ans- Bonds pay a coupon every six months, pay a constant coupon amount, and have a maturity date. Why is it important to consider the cost of capital in an ideal evaluation method of capital investment? Because cash flows for a project may be uncertain Because it cannot be determined how a potential project enhances the firm's value without considering every cash flow of the project Because if you can receive money earlier, you can reinvest the cash into different projects earlier Because the value of a cash flow today is different from the value of a cash flow of the same amount of in 10 years Ans- Because cash flows for a project may be uncertain What must be determined in order to compare the values of two projects with differently timed cash flows that does not need to be determined for projects with similarly timed cash flows? Positive cash inflows and negative cash outflows Future value of the benefits and future value of the costs Opportunity cost Present value of the benefits Ans- Opportunity cost What is the disadvantage of debt financing? Debt financing creates a tax shield disadvantage. The more debt a company takes on, the less equity it can raise. A company with high amounts of debt will have a shorter YTM for its bonds. Debt financing does not actually achieve an optimal capital structure for a company. Ans- Debt financing does not actually achieve an optimal capital structure for a company. How do you factor sunk costs into capital investment analysis? They are inputted as negative cash inflows along with the initial outlay. Sunk costs are subtracted from the opportunity cost and attributed to net cash flow. They can be added into our analysis, depending on management's decision. For the purposes of analysis, sunk costs are irrelevant. Ans- For the purposes of analysis, sunk costs are irrelevant. Beckingham Sports is an American sporting goods company. Based on a $400,000 market study and a $600,000 fee for consulting spent prior to the project, the firm can increase its annual operating cash flow by $3,000,000 by selling overseas. Because the firm was considering the expansion, it spent $2,000,000 to purchase a land for new factory and equipment. However, someone is making an offer to pay the company $3,000,000 for the land it purchased for the new factory. What is relevant to include in the company's capital budgeting decision? $400,000 spent on the market study $2,000,000 spent to purchase the land Download and access full test