Spring Semester February 2026 WGU D776 Finance
Skills for Managers Objective Assessment (OA) Exam
Prep | Managerial Finance, Budgeting & Forecasting,
Financial Statement Analysis, Cost Behavior, Break-
Even Analysis, Capital Budgeting Decisions, ROI
Evaluation & Business Financial Strategy Study Guide
with Practice Questions
,Question 1:
What is the primary purpose of financial management?
A) To maximize company profits
B) To ensure liquidity
C) To maximize shareholder wealth
D) To manage expenses
Correct Option: C) To maximize shareholder wealth
Rationale:
The primary goal of financial management is to maximize shareholder wealth, which is
accomplished by making decisions that increase the company's value in the eyes of its
investors. This approach aligns the interests of management with those of the
shareholders and focuses on long-term profitability and sustainability.
Question 2:
Which financial statement provides a snapshot of a company’s assets, liabilities,
and equity at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Option: C) Balance Sheet
Rationale:
The Balance Sheet is a financial statement that summarizes a company's financial
position at a specific point in time. It includes assets, which are things the company
owns; liabilities, which are obligations or debts; and equity, which is the residual
interest in the assets after liabilities. It is essential for financial analysis and provides
insights into the company’s capital structure.
Question 3:
What does the term "working capital" refer to?
A) Total assets minus total liabilities
B) Current assets minus current liabilities
C) Fixed assets minus long-term liabilities
D) Total liabilities minus equity
Correct Option: B) Current assets minus current liabilities
, Rationale:
Working capital is defined as the difference between current assets and current
liabilities. It measures a company's short-term liquidity and operational efficiency. A
positive working capital indicates that a company can cover its short-term debts and is
vital for day-to-day operations.
Question 4:
Which of the following is an example of a long-term financial decision?
A) Choosing to purchase inventory
B) Deciding on a new marketing campaign
C) Issuing bonds to finance a new factory
D) Determining employee wage rates
Correct Option: C) Issuing bonds to finance a new factory
Rationale:
Issuing bonds to finance a new factory is considered a long-term financial decision, as
it involves raising capital and committing resources to an investment that will generate
returns over several years. Long-term financial decisions significantly affect the capital
structure and strategic direction of the company.
Question 5:
What is the primary risk associated with financial leverage?
A) Decreased operational efficiency
B) Increased fixed costs
C) Interest rate fluctuations
D) Bankruptcy risk
Correct Option: D) Bankruptcy risk
Rationale:
Financial leverage involves using borrowed funds to increase the potential return on
investment. However, it also increases the risk of bankruptcy, as firms with high levels
of debt must meet fixed interest obligations. If cash flows fall short, the company may
struggle to pay its debts, leading to insolvency.
Question 6:
What is the cost of equity?
A) The return required by equity investors
B) The interest rate on borrowed funds
Skills for Managers Objective Assessment (OA) Exam
Prep | Managerial Finance, Budgeting & Forecasting,
Financial Statement Analysis, Cost Behavior, Break-
Even Analysis, Capital Budgeting Decisions, ROI
Evaluation & Business Financial Strategy Study Guide
with Practice Questions
,Question 1:
What is the primary purpose of financial management?
A) To maximize company profits
B) To ensure liquidity
C) To maximize shareholder wealth
D) To manage expenses
Correct Option: C) To maximize shareholder wealth
Rationale:
The primary goal of financial management is to maximize shareholder wealth, which is
accomplished by making decisions that increase the company's value in the eyes of its
investors. This approach aligns the interests of management with those of the
shareholders and focuses on long-term profitability and sustainability.
Question 2:
Which financial statement provides a snapshot of a company’s assets, liabilities,
and equity at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Option: C) Balance Sheet
Rationale:
The Balance Sheet is a financial statement that summarizes a company's financial
position at a specific point in time. It includes assets, which are things the company
owns; liabilities, which are obligations or debts; and equity, which is the residual
interest in the assets after liabilities. It is essential for financial analysis and provides
insights into the company’s capital structure.
Question 3:
What does the term "working capital" refer to?
A) Total assets minus total liabilities
B) Current assets minus current liabilities
C) Fixed assets minus long-term liabilities
D) Total liabilities minus equity
Correct Option: B) Current assets minus current liabilities
, Rationale:
Working capital is defined as the difference between current assets and current
liabilities. It measures a company's short-term liquidity and operational efficiency. A
positive working capital indicates that a company can cover its short-term debts and is
vital for day-to-day operations.
Question 4:
Which of the following is an example of a long-term financial decision?
A) Choosing to purchase inventory
B) Deciding on a new marketing campaign
C) Issuing bonds to finance a new factory
D) Determining employee wage rates
Correct Option: C) Issuing bonds to finance a new factory
Rationale:
Issuing bonds to finance a new factory is considered a long-term financial decision, as
it involves raising capital and committing resources to an investment that will generate
returns over several years. Long-term financial decisions significantly affect the capital
structure and strategic direction of the company.
Question 5:
What is the primary risk associated with financial leverage?
A) Decreased operational efficiency
B) Increased fixed costs
C) Interest rate fluctuations
D) Bankruptcy risk
Correct Option: D) Bankruptcy risk
Rationale:
Financial leverage involves using borrowed funds to increase the potential return on
investment. However, it also increases the risk of bankruptcy, as firms with high levels
of debt must meet fixed interest obligations. If cash flows fall short, the company may
struggle to pay its debts, leading to insolvency.
Question 6:
What is the cost of equity?
A) The return required by equity investors
B) The interest rate on borrowed funds
