WGU D076- ALL UNIT TESTS |201 questions with
verified answers
A company calculated variances of a budget and actual cash flows that indicate
the firm's strengths and weaknesses in cash flows and its budgeting process.
Which major use of cash budgeting is this an example of? Ans✓✓✓-Performance
evaluation
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 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 developing a financial forecast for the next year. The company plans
to implement a new factory that will increase production and resulting sales by
20%.
Since the company's assets are increasing significantly, what else must increase?
Ans✓✓✓-Financing
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
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.
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
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 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? Ans✓✓✓-Yes, the analyst could use both
the NPV and the IRR.
,A financial manager at a company is trying to determine whether to issue new
stocks or new bonds to cover the costs of a project the company is doing the next
year.
Which main task in business finance is this situation an example of? Ans✓✓✓-
Making financing decisions
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 is currently operating at 75% capacity with current sales of $34 million.
Will the firm need to acquire additional fixed assets if its sales are predicted to
increase by $6 million next year? Ans✓✓✓-No, because the increase in sales will
not exceed the firm's sales capacity.
A potential project to expand the size of an apartment complex will cost
$100,000. Its calculated net present value is $5,000. Given this information, which
statement is correct? Ans✓✓✓-The project should be accepted because it has a
positive NPV.
A sign company is planning to have an initial public offering (IPO). In which type of
market will its stock first be sold to the public? Ans✓✓✓-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.
, An employee was recently hired as a financial analyst and asked to create a cash
budget for the employee's division for the next year.
Which component should the employee exclude from the budget? Ans✓✓✓-
Purchase of equipment that will be bought in three years
An energy company discovers that a new bill has been proposed to change the
amount of fuel that can be exported outside the country. If passed, this could
have a serious negative effect on the company's revenues. Some of the
company's competitors are obtaining insurance policies to compensate for this
risk, but since the energy company believes the likelihood of this bill passing is
low, it chooses to do nothing—ultimately taking responsibility for this particular
risk instead of trying to transfer the risk through an insurance policy.
Which risk management technique is this choice an example of? Ans✓✓✓-Risk
retention
An investment analyst is concerned about a construction company's ability to sell
its inventory to meet current obligations, because much of the inventory
(commercial buildings) it builds and sells takes longer than a year to construct.
Which ratio should this analyst use to consider the effect of the firm's inventory
on the firm's ability to meet current obligations? Ans✓✓✓-Quick ratio
An investor is reviewing the bonds of four different companies: Company A issues
AA-rated bonds. Company B issues A-rated bonds. Company C issues BB-rated
bonds. Company D issues C-rated bonds.
Which company is likely to provide the lowest rate of return to the investor?
Ans✓✓✓-Company A
An investor really cares about having voting rights in a firm.
verified answers
A company calculated variances of a budget and actual cash flows that indicate
the firm's strengths and weaknesses in cash flows and its budgeting process.
Which major use of cash budgeting is this an example of? Ans✓✓✓-Performance
evaluation
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 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 developing a financial forecast for the next year. The company plans
to implement a new factory that will increase production and resulting sales by
20%.
Since the company's assets are increasing significantly, what else must increase?
Ans✓✓✓-Financing
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
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.
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
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 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? Ans✓✓✓-Yes, the analyst could use both
the NPV and the IRR.
,A financial manager at a company is trying to determine whether to issue new
stocks or new bonds to cover the costs of a project the company is doing the next
year.
Which main task in business finance is this situation an example of? Ans✓✓✓-
Making financing decisions
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 is currently operating at 75% capacity with current sales of $34 million.
Will the firm need to acquire additional fixed assets if its sales are predicted to
increase by $6 million next year? Ans✓✓✓-No, because the increase in sales will
not exceed the firm's sales capacity.
A potential project to expand the size of an apartment complex will cost
$100,000. Its calculated net present value is $5,000. Given this information, which
statement is correct? Ans✓✓✓-The project should be accepted because it has a
positive NPV.
A sign company is planning to have an initial public offering (IPO). In which type of
market will its stock first be sold to the public? Ans✓✓✓-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.
, An employee was recently hired as a financial analyst and asked to create a cash
budget for the employee's division for the next year.
Which component should the employee exclude from the budget? Ans✓✓✓-
Purchase of equipment that will be bought in three years
An energy company discovers that a new bill has been proposed to change the
amount of fuel that can be exported outside the country. If passed, this could
have a serious negative effect on the company's revenues. Some of the
company's competitors are obtaining insurance policies to compensate for this
risk, but since the energy company believes the likelihood of this bill passing is
low, it chooses to do nothing—ultimately taking responsibility for this particular
risk instead of trying to transfer the risk through an insurance policy.
Which risk management technique is this choice an example of? Ans✓✓✓-Risk
retention
An investment analyst is concerned about a construction company's ability to sell
its inventory to meet current obligations, because much of the inventory
(commercial buildings) it builds and sells takes longer than a year to construct.
Which ratio should this analyst use to consider the effect of the firm's inventory
on the firm's ability to meet current obligations? Ans✓✓✓-Quick ratio
An investor is reviewing the bonds of four different companies: Company A issues
AA-rated bonds. Company B issues A-rated bonds. Company C issues BB-rated
bonds. Company D issues C-rated bonds.
Which company is likely to provide the lowest rate of return to the investor?
Ans✓✓✓-Company A
An investor really cares about having voting rights in a firm.
