WGU D076 Finance Skills for Managers |171 questions
with verified answers
"Which scenario is an example of an agency problem?
The management team works overtime without pay to complete financial reports.
An employee takes a potential client to dinner and pays for it using the company
credit card.
The owners of the company offer shares of the company to management.
A manager purchases a company car and allocates it as a company expense.
Ans✓✓✓-A manager purchases a company car and allocates it as a company
expense.
A company currently has a ratio of 1.5 but hopes to improve the ratio to 2 to align
more with the industry benchmark. To achieve this goal, costs were cut in
production through an investment in efficient equipment, and the company
achieved a higher profit margin. If this continues, you are certain that the firm will
achieve its goal in two years. What is this an example of? Ans✓✓✓-Progress
measurement
A company is trying to finance a project with a mortgage loan from a bank. The
company's assessment of the project indicates that the company may experience
several years of loss until the project becomes profitable. This means that the
company might lose its ability to pay back the loan and the interest on the
mortgage. What action might the bank take to protect its interest? Ans✓✓✓-Set
a strict covenant that the company cannot easily achieve.
By setting a strict covenant, there is a risk that the company may not meet its
obligation, which would deter the company from taking on risky projects.
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?
Ans✓✓✓-Agency problem due to conflicting interests
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? Ans✓✓✓-Because the firm did not make all sales on cash
A firm has paid off its short-term loans more quickly in the past couple of years.
What might this trend indicate about the firm's financial ratios? Ans✓✓✓-Its
liquidity ratio is increasing.
A large corporation is looking to merge with another large corporation. Which
financial institution can help them do this? Ans✓✓✓-Investment banks facilitate
complex financial deals, like mergers.
A local start-up company just hit its five-year anniversary and is planning an initial
public offering sometime this year. In order to issue public stock, which market
will the company use? Ans✓✓✓-Primary market
When a company issues stock for the first time to raise capital, shares must
initially be sold through a primary market.
About a year ago, the short-term Treasury bill had 1.54% interest and the long-
term Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an
interest rate of 3.13%, while the 10-year Treasury note has an interest rate of
2.28%. What does this information indicate about the future economy?
Ans✓✓✓-It may indicate an economic downturn.
BigDog and SmallDog are two companies that have an identical return on equity.
One difference between the two companies is that BigDog has 40% of assets
, financed by debt while SmallDog has 100% of assets financed by equity. What can
you conclude about BigDog and SmallDog? Ans✓✓✓-SmallDog has a higher ROA
than BigDog.
Since SmallDog has no debt, the leverage multiplier of SmallDog is smaller than
that of BigDog. Since both companies have the same ROE, SmallDog must have a
higher ROA.
Company ABC would like to continue to grow, but in order to maintain control of
all decisions and ownership, it wants to avoid issuing new stock. Which calculation
will show the company's leadership the fastest that ABC can grow? Ans✓✓✓-
Sustainable growth rate is defined as the rate at which a firm can grow without
issuing new equity. It implies that the firm's growth comes from the return on
equity less any dividends.
Endothon Company has decided to move its production from the United States to
a foreign country. Which situation below would constitute an unethical action by
the company?
Lowering costs while keeping prices the same for customers
Monitoring public perception of the company
Telling current employees about the decision early on
Saving money by paying inadequate wages to workers overseas Ans✓✓✓-Saving
money by paying inadequate wages to workers overseas
Five years ago, Ahmed decided he was going to save up to purchase a car with
cash. The car he wants is priced at $15,000. He saved $245 a month in an account
that gave him enough interest to have $15,000 in five years. Today, he pulled out
$15,000 from his account to buy the car, but the price of the car is now $16,562.
Which component of the required rate of return did Ahmed forget to consider?
Ans✓✓✓-Inflation
with verified answers
"Which scenario is an example of an agency problem?
The management team works overtime without pay to complete financial reports.
An employee takes a potential client to dinner and pays for it using the company
credit card.
The owners of the company offer shares of the company to management.
A manager purchases a company car and allocates it as a company expense.
Ans✓✓✓-A manager purchases a company car and allocates it as a company
expense.
A company currently has a ratio of 1.5 but hopes to improve the ratio to 2 to align
more with the industry benchmark. To achieve this goal, costs were cut in
production through an investment in efficient equipment, and the company
achieved a higher profit margin. If this continues, you are certain that the firm will
achieve its goal in two years. What is this an example of? Ans✓✓✓-Progress
measurement
A company is trying to finance a project with a mortgage loan from a bank. The
company's assessment of the project indicates that the company may experience
several years of loss until the project becomes profitable. This means that the
company might lose its ability to pay back the loan and the interest on the
mortgage. What action might the bank take to protect its interest? Ans✓✓✓-Set
a strict covenant that the company cannot easily achieve.
By setting a strict covenant, there is a risk that the company may not meet its
obligation, which would deter the company from taking on risky projects.
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?
Ans✓✓✓-Agency problem due to conflicting interests
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? Ans✓✓✓-Because the firm did not make all sales on cash
A firm has paid off its short-term loans more quickly in the past couple of years.
What might this trend indicate about the firm's financial ratios? Ans✓✓✓-Its
liquidity ratio is increasing.
A large corporation is looking to merge with another large corporation. Which
financial institution can help them do this? Ans✓✓✓-Investment banks facilitate
complex financial deals, like mergers.
A local start-up company just hit its five-year anniversary and is planning an initial
public offering sometime this year. In order to issue public stock, which market
will the company use? Ans✓✓✓-Primary market
When a company issues stock for the first time to raise capital, shares must
initially be sold through a primary market.
About a year ago, the short-term Treasury bill had 1.54% interest and the long-
term Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an
interest rate of 3.13%, while the 10-year Treasury note has an interest rate of
2.28%. What does this information indicate about the future economy?
Ans✓✓✓-It may indicate an economic downturn.
BigDog and SmallDog are two companies that have an identical return on equity.
One difference between the two companies is that BigDog has 40% of assets
, financed by debt while SmallDog has 100% of assets financed by equity. What can
you conclude about BigDog and SmallDog? Ans✓✓✓-SmallDog has a higher ROA
than BigDog.
Since SmallDog has no debt, the leverage multiplier of SmallDog is smaller than
that of BigDog. Since both companies have the same ROE, SmallDog must have a
higher ROA.
Company ABC would like to continue to grow, but in order to maintain control of
all decisions and ownership, it wants to avoid issuing new stock. Which calculation
will show the company's leadership the fastest that ABC can grow? Ans✓✓✓-
Sustainable growth rate is defined as the rate at which a firm can grow without
issuing new equity. It implies that the firm's growth comes from the return on
equity less any dividends.
Endothon Company has decided to move its production from the United States to
a foreign country. Which situation below would constitute an unethical action by
the company?
Lowering costs while keeping prices the same for customers
Monitoring public perception of the company
Telling current employees about the decision early on
Saving money by paying inadequate wages to workers overseas Ans✓✓✓-Saving
money by paying inadequate wages to workers overseas
Five years ago, Ahmed decided he was going to save up to purchase a car with
cash. The car he wants is priced at $15,000. He saved $245 a month in an account
that gave him enough interest to have $15,000 in five years. Today, he pulled out
$15,000 from his account to buy the car, but the price of the car is now $16,562.
Which component of the required rate of return did Ahmed forget to consider?
Ans✓✓✓-Inflation
