Wgu - D076 questions with verified answers
0/1
Maria and Mateo are setting financial goals. They decide that they need to save
$200 each month to reach their goal of taking their children to visit their
grandparents in Spain next summer. What is the objective of setting such a goal?
Ans✓✓✓-To maximize individual utility -While everyone has different personal
financial goals, the objectives of such goals is to maximize individual utility.
0/1
You are analyzing fixed assets to create pro forma financial statements for your
company. You realize that, since sales will increase next year, you will also need
your manufacturing capacity to increase by the same amount. Currently, you are
operating at maximum capacity. You buy an entire new factory and multiple
pieces of equipment that increase capacity to much more than you need to meet
the sales growth. Which concept describes why such a large purchase was
necessary? Ans✓✓✓-Fixed assets are lumpy. - You cannot purchase only part of a
factory and equipment to meet the sales growth. Instead, you must purchase the
entire factory along with all the equipment to meet the sales growth. We call the
increase of fixed assets as the firm approaches its full capacity "lumpy assets"
because it requires a lump sum purchase.
1/1
Omar is about to purchase a new car for $30,000. He knows he wants to buy the
car, but he is still trying to decide how to pay for it. He has barely over $30,000 in
his bank account. He can either take out an auto loan from a bank or use a mix of
cash and an auto loan. Ans✓✓✓-Financing a goal - He has already made a
decision to purchase the car and is now deciding on financing options.
1/1
,The company Betsy's Wigs is considering three potential projects that are not
mutually exclusive. The IRR, NPV, and PI for each project are listed in the table
below. Use this information to rank the projects in the order in which Betsy's Wigs
should accept them to bring the most value to the firm.
Project Project 1 Project 2 Project 3
IRR 23% 18% 21%
NPV $820 $880 $790
PI 1.02 1.27 1.35 Ans✓✓✓-Project 3, Project 2, Project 1 - The projects with the
highest PIs should be accepted first.
1/1
Which type of financial institution is a mutual fund? Ans✓✓✓-Investment
institution - Investment institutions provide individuals and firms access to
financial markets.
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 - You are comparing the company's ratio to the goal and checking
how the company is progressing toward the goal.
A company is considering five projects that are not mutually exclusive. However,
the company does not have enough money to do all of them. In order to prioritize
projects that fit within the company's budget, which capital budgeting method
should be used? Ans✓✓✓-Profitability index (PI)
, A company is trying to decide which of four projects to invest in.
Project 1 has an IRR of 14% and an NPV of $54,000.
Project 2 has an IRR of 11% and an NPV of $67,000.
Project 3 has an IRR of 9% and an NPV of $60,000.
Project 4 has an IRR of 13% and an NPV of $47,000.
If the company can do only one project, which project should it choose to add the
greatest value to the firm? Ans✓✓✓-Project 2 -The project with the highest NPV
will bring the most value to the company.
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 that produces soap, shampoo, lotion, and other personal care
products has recently taken a hit due to a competitor's new product line. The
company decides to reduce wages for its labor force to save money while the
company focuses on building up its reputation again, but the company's labor
force goes on strike to protest the pay cuts. What type of risk does the strike
represent? Ans✓✓✓-Idiosyncratic risk - Idiosyncratic risk is the same as firm-
specific risk. Since the strike will most likely affect only this firm, it is a firm-
specific risk.
0/1
Maria and Mateo are setting financial goals. They decide that they need to save
$200 each month to reach their goal of taking their children to visit their
grandparents in Spain next summer. What is the objective of setting such a goal?
Ans✓✓✓-To maximize individual utility -While everyone has different personal
financial goals, the objectives of such goals is to maximize individual utility.
0/1
You are analyzing fixed assets to create pro forma financial statements for your
company. You realize that, since sales will increase next year, you will also need
your manufacturing capacity to increase by the same amount. Currently, you are
operating at maximum capacity. You buy an entire new factory and multiple
pieces of equipment that increase capacity to much more than you need to meet
the sales growth. Which concept describes why such a large purchase was
necessary? Ans✓✓✓-Fixed assets are lumpy. - You cannot purchase only part of a
factory and equipment to meet the sales growth. Instead, you must purchase the
entire factory along with all the equipment to meet the sales growth. We call the
increase of fixed assets as the firm approaches its full capacity "lumpy assets"
because it requires a lump sum purchase.
1/1
Omar is about to purchase a new car for $30,000. He knows he wants to buy the
car, but he is still trying to decide how to pay for it. He has barely over $30,000 in
his bank account. He can either take out an auto loan from a bank or use a mix of
cash and an auto loan. Ans✓✓✓-Financing a goal - He has already made a
decision to purchase the car and is now deciding on financing options.
1/1
,The company Betsy's Wigs is considering three potential projects that are not
mutually exclusive. The IRR, NPV, and PI for each project are listed in the table
below. Use this information to rank the projects in the order in which Betsy's Wigs
should accept them to bring the most value to the firm.
Project Project 1 Project 2 Project 3
IRR 23% 18% 21%
NPV $820 $880 $790
PI 1.02 1.27 1.35 Ans✓✓✓-Project 3, Project 2, Project 1 - The projects with the
highest PIs should be accepted first.
1/1
Which type of financial institution is a mutual fund? Ans✓✓✓-Investment
institution - Investment institutions provide individuals and firms access to
financial markets.
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 - You are comparing the company's ratio to the goal and checking
how the company is progressing toward the goal.
A company is considering five projects that are not mutually exclusive. However,
the company does not have enough money to do all of them. In order to prioritize
projects that fit within the company's budget, which capital budgeting method
should be used? Ans✓✓✓-Profitability index (PI)
, A company is trying to decide which of four projects to invest in.
Project 1 has an IRR of 14% and an NPV of $54,000.
Project 2 has an IRR of 11% and an NPV of $67,000.
Project 3 has an IRR of 9% and an NPV of $60,000.
Project 4 has an IRR of 13% and an NPV of $47,000.
If the company can do only one project, which project should it choose to add the
greatest value to the firm? Ans✓✓✓-Project 2 -The project with the highest NPV
will bring the most value to the company.
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 that produces soap, shampoo, lotion, and other personal care
products has recently taken a hit due to a competitor's new product line. The
company decides to reduce wages for its labor force to save money while the
company focuses on building up its reputation again, but the company's labor
force goes on strike to protest the pay cuts. What type of risk does the strike
represent? Ans✓✓✓-Idiosyncratic risk - Idiosyncratic risk is the same as firm-
specific risk. Since the strike will most likely affect only this firm, it is a firm-
specific risk.
