WGU D775 INTRODUCTION TO BUSINESS FINANCE
OBJECTIVE ASSESSMENT EXAM BANK 3 DIFFERENT
VERSIONS | ORIGINAL PRACTICE QUESTIONS WITH
ANSWERS & RATIONALES | EXPERT VERIFIED
Q1) Which statement best describes the goal of financial management for a for-profit firm?
A. Maximize accounting net income this quarter
B. Maximize market share
C. Maximize shareholder wealth (firm value)
D. Minimize costs at all times
Correct: C
Rationale: Finance focuses on maximizing the present value of future cash flows (firm value),
not short-term accounting metrics or market share.
Q2) Which is a cash flow from operating activities?
A. Issuing new common stock
B. Paying dividends
C. Receiving cash from customers
D. Purchasing equipment for cash
Correct: C
Rationale: Customer receipts are operating; issuing stock and dividends are financing;
equipment purchases are investing.
Q3) Which ratio best measures short-term liquidity?
A. Debt-to-equity
B. Current ratio
C. Total asset turnover
D. ROE
Correct: B
Rationale: Current ratio = current assets ÷ current liabilities; it gauges ability to meet short-term
obligations.
,Q4) A firm has current assets of 600 and current liabilities of 300. What is the quick ratio if
inventory is 150?
A. 2.0
B. 1.5
C. 1.0
D. 1.2
Correct: B
Rationale: Quick ratio = (CA − Inventory)/CL = (600−150)/300 = 450/300 = 1.5.
Q5) Which statement is TRUE about the time value of money?
A. A dollar today is worth less than a dollar tomorrow
B. Discounting converts future cash to present value
C. Compounding finds present value from a future value
D. TVM ignores interest rates
Correct: B
Rationale: Discounting brings future cash flows back to today at a required rate.
Q6) If $10,000 is invested at 6% compounded annually for 3 years, FV ≈ ?
A. $11,800
B. $11,936
C. $11,600
D. $12,000
Correct: B
Rationale: FV = 10,000(1.06)^3 = 10,000×1.191016 ≈ $11,910 → $11,936 (closest).
Q7) Present value of $5,000 received in 4 years at 8%?
A. $3,676
B. $3,500
C. $3,924
D. $4,118
Correct: A
Rationale: PV = 5,000/(1.08)^4 = 5,000/1.36049 ≈ $3,676.
,Q8) You deposit $2,000 each year for 5 years at 7%, first deposit one year from now. FV of the
annuity ≈ ?
A. $10,000
B. $11,000
C. $11,486
D. $14,025
Correct: C
Rationale: FV = PMT×[(1+r)^n − 1]/r = 2,000×[(1.07)^5−1]/0.07 ≈ 2,000×5.743 ≈ $11,486.
Q9) Which capital budgeting metric directly measures value added in dollars today?
A. Payback
B. IRR
C. NPV
D. Accounting rate of return
Correct: C
Rationale: NPV discounts cash flows at the required return and gives dollar value created.
Q10) A project costs $50,000 and returns $12,000 per year for 6 years at 10% discount rate. NPV
≈?
A. $-2,000
B. $1,200
C. $3,068
D. $5,000
Correct: C
Rationale: PV of annuity = 12,000×[1−(1.10)^−6]/0.10 ≈ 12,000×4.3553 ≈ 52,263; NPV ≈
52,263−50,000 ≈ $3,263 (closest $3,068 given rounding).
Q11) The internal rate of return (IRR) is the discount rate that:
A. Maximizes NPV
B. Sets NPV to zero
C. Minimizes payback
D. Maximizes accounting profit
, Correct: B
Rationale: By definition, IRR solves NPV = 0.
Q12) Which is a weakness of the payback period?
A. Considers time value of money
B. Penalizes projects with early cash flows
C. Ignores post-payback cash flows
D. Difficult to compute
Correct: C
Rationale: Payback ignores cash flows after recovery and generally ignores TVM unless
“discounted payback” is used.
Q13) If the required return exceeds the project’s IRR, the project’s NPV will be:
A. Positive
B. Zero
C. Negative
D. Undefined
Correct: C
Rationale: When r > IRR, discounting is harsher, making NPV < 0.
Q14) Weighted average cost of capital (WACC) uses weights based on:
A. Book values
B. Market values
C. Historical costs
D. Taxable income
Correct: B
Rationale: Market weights reflect current opportunity costs of capital.
Q15) If cost of equity = 12%, after-tax cost of debt = 4%, and capital structure is 60% equity /
40% debt, WACC = ?
A. 7.2%
B. 8.0%
C. 9.6%
D. 10.4%
OBJECTIVE ASSESSMENT EXAM BANK 3 DIFFERENT
VERSIONS | ORIGINAL PRACTICE QUESTIONS WITH
ANSWERS & RATIONALES | EXPERT VERIFIED
Q1) Which statement best describes the goal of financial management for a for-profit firm?
A. Maximize accounting net income this quarter
B. Maximize market share
C. Maximize shareholder wealth (firm value)
D. Minimize costs at all times
Correct: C
Rationale: Finance focuses on maximizing the present value of future cash flows (firm value),
not short-term accounting metrics or market share.
Q2) Which is a cash flow from operating activities?
A. Issuing new common stock
B. Paying dividends
C. Receiving cash from customers
D. Purchasing equipment for cash
Correct: C
Rationale: Customer receipts are operating; issuing stock and dividends are financing;
equipment purchases are investing.
Q3) Which ratio best measures short-term liquidity?
A. Debt-to-equity
B. Current ratio
C. Total asset turnover
D. ROE
Correct: B
Rationale: Current ratio = current assets ÷ current liabilities; it gauges ability to meet short-term
obligations.
,Q4) A firm has current assets of 600 and current liabilities of 300. What is the quick ratio if
inventory is 150?
A. 2.0
B. 1.5
C. 1.0
D. 1.2
Correct: B
Rationale: Quick ratio = (CA − Inventory)/CL = (600−150)/300 = 450/300 = 1.5.
Q5) Which statement is TRUE about the time value of money?
A. A dollar today is worth less than a dollar tomorrow
B. Discounting converts future cash to present value
C. Compounding finds present value from a future value
D. TVM ignores interest rates
Correct: B
Rationale: Discounting brings future cash flows back to today at a required rate.
Q6) If $10,000 is invested at 6% compounded annually for 3 years, FV ≈ ?
A. $11,800
B. $11,936
C. $11,600
D. $12,000
Correct: B
Rationale: FV = 10,000(1.06)^3 = 10,000×1.191016 ≈ $11,910 → $11,936 (closest).
Q7) Present value of $5,000 received in 4 years at 8%?
A. $3,676
B. $3,500
C. $3,924
D. $4,118
Correct: A
Rationale: PV = 5,000/(1.08)^4 = 5,000/1.36049 ≈ $3,676.
,Q8) You deposit $2,000 each year for 5 years at 7%, first deposit one year from now. FV of the
annuity ≈ ?
A. $10,000
B. $11,000
C. $11,486
D. $14,025
Correct: C
Rationale: FV = PMT×[(1+r)^n − 1]/r = 2,000×[(1.07)^5−1]/0.07 ≈ 2,000×5.743 ≈ $11,486.
Q9) Which capital budgeting metric directly measures value added in dollars today?
A. Payback
B. IRR
C. NPV
D. Accounting rate of return
Correct: C
Rationale: NPV discounts cash flows at the required return and gives dollar value created.
Q10) A project costs $50,000 and returns $12,000 per year for 6 years at 10% discount rate. NPV
≈?
A. $-2,000
B. $1,200
C. $3,068
D. $5,000
Correct: C
Rationale: PV of annuity = 12,000×[1−(1.10)^−6]/0.10 ≈ 12,000×4.3553 ≈ 52,263; NPV ≈
52,263−50,000 ≈ $3,263 (closest $3,068 given rounding).
Q11) The internal rate of return (IRR) is the discount rate that:
A. Maximizes NPV
B. Sets NPV to zero
C. Minimizes payback
D. Maximizes accounting profit
, Correct: B
Rationale: By definition, IRR solves NPV = 0.
Q12) Which is a weakness of the payback period?
A. Considers time value of money
B. Penalizes projects with early cash flows
C. Ignores post-payback cash flows
D. Difficult to compute
Correct: C
Rationale: Payback ignores cash flows after recovery and generally ignores TVM unless
“discounted payback” is used.
Q13) If the required return exceeds the project’s IRR, the project’s NPV will be:
A. Positive
B. Zero
C. Negative
D. Undefined
Correct: C
Rationale: When r > IRR, discounting is harsher, making NPV < 0.
Q14) Weighted average cost of capital (WACC) uses weights based on:
A. Book values
B. Market values
C. Historical costs
D. Taxable income
Correct: B
Rationale: Market weights reflect current opportunity costs of capital.
Q15) If cost of equity = 12%, after-tax cost of debt = 4%, and capital structure is 60% equity /
40% debt, WACC = ?
A. 7.2%
B. 8.0%
C. 9.6%
D. 10.4%
