WGU D076 Complete Answers 100% Correct (Latest 2024) STUDY GUIDE 1. A variable that describes how the price of a security varies with the market. - Answer : Beta 2. An area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to its owners, and the tools and analysis used to allocate financial resources. Answer : Business Finance 3. Metrics and calculations used to determine whether a project or asset will add value and be a worthwhile investment. Answer : Capital Budgeting Criteria 4. The sum of money invested in a business to purchase long-term assets to further its objective of maximizing owner wealth. Answer : Capital Investment 5. The mixture of debt and equity used to finance a firm. Answer : Capital Structure 6. A feature of preferred stock specifying that if a company skips payment of a preferred stock dividend one year, it is still required to pay that dividend sometime in the future before paying any common dividends. Answer : Cumulative 7. Companies or securities with beta less than 1. Answer : Defensive Assets 8. The name for interest rate when used in time value of money calculations. - Answer : Discount Rate 9. A model used to evaluate common stock that calculates the value of a share of common stock today by taking the present value of future dividend cash flows. Answer : Dividend Discount Model 10. A market in which prices fully relect all the available information about a specific security. Answer : Efficient market 11. The return over the entire period that an investor owns a financial securi ty. Answer : Holding Period Return 12. The rate of return that a firm earns on its capital projects. Answer : Internal Rate of Return (IRR) 13. Risk that is inherent in the economy as a whole and cannot be diversified away; also called systematic risk or nondiversifiable risk. Answer : Market Risk 14. A market ratio found by market value of equity divided by book value of equity. Answer : Market -to-book Ratio (M/B Ratio) 15. Risk that results from factors at a particular firm and can be reduced through diversification; also called firm-specific risk or idiosyncratic risk. Answer : - Nonsystematic Risk 16. A formula used to value preferred stock that is based on the calculation of a perpetuity. Answer : Perpetuity Model 17. The percent of net income retained in the firm; also called the retention ratio. Answer : Plowback Ratio 18. A liquidity ratio found by current assets less inventory, divided by current liabilities; also called the acid -test ratio. Answer : Quick Ratio 19. A profitability ratio found by net income divided by total assets. Answer : Return On Assets (ROA) 20. The money gained or lost on an investment over a certain period of time. Answer : Return 21. A decision to take responsibility for a particular risk. Answer : Risk Retention 22. The process of combining several types of contractual debt (such as mortgages) and reselling them as a package to investors. Answer : Securitization 23. The unlimited earnings potential of equity ownership. Answer : Upside Potential 24. An expense that you have direct control over and that can change from period to period . Answer : Variable Expenditures 25. Which type of ratio should be used to examine the cost efficiency of a firm's production? Answer : Profitability 26. Which ratio helps an analyst evaluate whether a company can cover its short -term obligations? Answer : Current ratio 27. Which ratio should an analyst use to consider the effect of a firm's inven tory on a firm's ability to meet current obligations? Answer : Quick ratio 28. Because the value of a cash flow today is different from the value of a cash flow of the same dollar amount in 10 years: Why is it important to consider the time value of money in an ideal evaluation method for capital investment? 29. What kind of account is Notes payable? Answer : Discretionary account 30. Total Interest=Principal×(1+Interest Rate)^Number of Periods
Princip a: l- Compound Interest equation 31. Present Value=PMT/i Answer : Present Value of a Perpetuity equation 32. One is that return on all the investors (debtholders and equity holders) is measured by the firm's profitability and asset usage efficiency. The effect of debt, or in other words, the effect of the capital structure of the firm, appears only on the return on equity.: What does the DuPont Framework tell us? 33. Slow Sales Growth Examine Capacity Constraints Lower Dividend Payout Increase Net Margin: How can you reduce DFN? 34. NPV: Considers time value of money Calculates value added to the firm Considers risk and required return: What are the advantages of NPV? 35. The solution can only be obtained through trial and error (or interpolation). - : What should you be aware of when calculating IRR? 36. Dividends are paid every year. Dividends grow at a constant rate forev - er: What assumptions does the Gordon Growth Model make in order to make the dividend discount model usable? 37. For the capital budgeting process of capital investment, it is essential to consider the time value of money, the risk of a project, and all the cash flows of a project to evaluate whether the project is worthwhile.: What should you considering in the capital budgeting process of capital investment? 38. It includes all cash flows that occur during the life of the project. It considers the time value of money.
Princip a: l- Compound Interest equation 31. Present Value=PMT/i Answer : Present Value of a Perpetuity equation 32. One is that return on all the investors (debtholders and equity holders) is measured by the firm's profitability and asset usage efficiency. The effect of debt, or in other words, the effect of the capital structure of the firm, appears only on the return on equity.: What does the DuPont Framework tell us? 33. Slow Sales Growth Examine Capacity Constraints Lower Dividend Payout Increase Net Margin: How can you reduce DFN? 34. NPV: Considers time value of money Calculates value added to the firm Considers risk and required return: What are the advantages of NPV? 35. The solution can only be obtained through trial and error (or interpolation). - : What should you be aware of when calculating IRR? 36. Dividends are paid every year. Dividends grow at a constant rate forev - er: What assumptions does the Gordon Growth Model make in order to make the dividend discount model usable? 37. For the capital budgeting process of capital investment, it is essential to consider the time value of money, the risk of a project, and all the cash flows of a project to evaluate whether the project is worthwhile.: What should you considering in the capital budgeting process of capital investment? 38. It includes all cash flows that occur during the life of the project. It considers the time value of money.
