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WGU C201 BUSINESS ACUMEN – OBJECTIVE
ASSESSMENT 2 – VERSION A | COMPLETE
PRACTICE QUESTIONS WITH ACCURATE
ANSWERS
1. A firm’s 2024 balance sheet shows current assets of $4.2 million, inventory of $2.7 million,
and current liabilities of $1.8 million. Its quick ratio is closest to
A. 0.83
B. 1.4
C. 2.3
D. 0.48
Answer: A
Rationale: Quick ratio = (current assets – inventory) / current liabilities = ($4.2 m – $2.7 m) /
$1.8 m = $1.5 m / $1.8 m ≈ 0.83. Inventory is excluded because it is the least-liquid current
asset. Option B reverses the numerator and denominator; C uses current ratio; D omits half of
receivables.
2. Which action will improve a company’s current ratio without affecting its quick ratio?
A. Collecting accounts receivable
B. Purchasing additional inventory on credit
C. Paying off short-term bank debt with cash
D. Writing down obsolete inventory
Answer: B
Rationale: Buying inventory on credit increases both current assets (inventory) and current
liabilities (A/P) by equal dollar amounts. Because inventory is excluded from the quick ratio, the
quick ratio declines while the current ratio rises (larger base of current assets). Collecting A/R
(A) is neutral inside both ratios; paying debt (C) improves both; write-down (D) hurts both.
3. A company with a gross profit margin of 38 % and a net profit margin of 8 % experiences a 5
% decline in sales and a 3 % decline in cost of goods sold. Holding all other costs constant, the
gross margin will
A. Rise because COGS fell
B. Fall because sales fell more than COGS
C. Remain unchanged because both sales and COGS moved proportionally
, 2
D. Rise because operating leverage improves
Answer: A
Rationale: Gross margin = (Sales – COGS) / Sales. A 5 % sales drop reduces numerator and
denominator, but a 3 % COGS drop (smaller absolute decline) widens the spread, raising the
ratio. Numerical example: original sales 100, COGS 62, margin 38 %. New sales 95, COGS 60.14,
margin = (95 – 60.14) / 95 ≈ 36.7 % → increases from 38 % to 36.7 % is incorrect; recalculation
shows margin rises to ≈ 36.7 % is wrong; correct arithmetic: (95 – 60.14) / 95 = 34. ≈ 36.7
%, which is lower than 38 %. Correction: the margin falls, so the correct choice is B.
Answer: B
Rationale: Although both decline, the 5 % sales drop shrinks the denominator faster than the 3
% COGS drop shrinks the numerator, compressing the gross margin. Thus the margin falls,
contradicting the initial phrasing. Option B correctly captures the directional outcome.
4. During 2023, AlphaTech’s ROE was 15 %, asset turnover 1.2, and financial leverage 1.5. Its net
profit margin was closest to
A. 8.3 %
B. 12.5 %
C. 10.0 %
D. 18.0 %
Answer: A
Rationale: ROE = net margin × asset turnover × leverage → 15 % = margin × 1.2 × 1.5 → margin
= 15 % / 1.8 ≈ 8.3 %. Other choices reverse the formula or ignore leverage.
5. A capital-intensive utility has a debt-to-equity ratio of 2.0 and an interest-coverage ratio of
2.1. The greatest financial risk the firm faces is
A. Inability to service debt during a modest earnings downturn
B. Excessive equity dilution from new share issuance
C. Regulatory pressure to cut dividends
D. High tax shield volatility
Answer: A
Rationale: An interest-coverage ratio barely above 2.0 leaves little EBITDA cushion; a small
earnings decline could breach loan covenants. High leverage (2.0 D/E) amplifies the risk. B is
unlikely because high leverage discourages equity issuance; C and D are secondary.
, 3
6. A project requires an initial outlay of $500,000 and promises five equal annual cash inflows of
$140,000. If the company’s hurdle rate is 10 %, the project’s NPV is approximately
A. $31,000
B. –$31,000
C. $140,000
D. $0
Answer: A
Rationale: PV of annuity = $140,000 × [1 – (1 + 0.10)^-5] / 0.10 ≈ $140,000 × 3.7908 ≈ $530,712.
NPV = $530,712 – $500,000 ≈ $30,712 ≈ $31,000 positive. Negative choice (B) inverts sign; C is
undiscounted gross inflow; D assumes IRR = hurdle rate.
7. A sinking-fund provision in a bond issue is PRIMARILY designed to
A. Lower the bond’s coupon rate
B. Reduce default risk by systematic repayment
C. Increase the bond’s duration
D. Provide call protection to investors
Answer: B
Rationale: A sinking fund retires portions of principal before maturity, lowering credit risk. It
does not directly affect coupon (A) or duration (C); it may add call risk, not protection (D).
8. Which budgeting approach is MOST effective for aligning departmental spending with
corporate strategy?
A. Zero-based budgeting
B. Incremental budgeting
C. Flexible budgeting
D. Static budgeting
Answer: A
Rationale: Zero-based budgeting forces managers to justify every dollar from scratch, ensuring
alignment with current strategic priorities. Incremental merely adjusts prior year; flexible reacts
to volume, not strategy; static ignores both.
9. A company’s flexible-budget variance for direct labor is $45,000 favorable. This means that
A. Actual labor cost was $45,000 less than the static-budget figure
B. Actual labor cost was $45,000 less than the flexible-budget amount for actual output
C. Standard labor hours were higher than budgeted
, 4
D. Wage rates were higher than standard
Answer: B
Rationale: Flexible-budget variance compares actual costs to the flexible budget adjusted for
actual production volume. Favorable implies lower actual cost. A混淆 static variance; C and D
would typically be unfavorable.
10. A firm using absorption costing reports higher net income than under variable costing when
A. Production exceeds sales, deferring fixed overhead in inventory
B. Sales exceed production, liquidating LIFO layers
C. Variable manufacturing costs decline
D. Fixed SG&A increases
Answer: A
Rationale: Absorption costing capitalizes fixed manufacturing overhead into inventory. When
production > sales, some fixed overhead is inventoried, reducing COGS and increasing reported
income relative to variable costing. B reverses the effect; C and D affect both methods similarly.
11. Which of the following is a lagging indicator in a balanced scorecard?
A. Customer retention rate
B. Revenue growth
C. Employee engagement index
D. Number of new patents filed
Answer: B
Rationale: Revenue growth is a historical outcome metric. A is also lagging but often
categorized as customer perspective; C and D are leading indicators of future performance.
12. During the maturity stage of the product life cycle, the most likely pricing strategy is
A. Penetration pricing
B. Price skimming
C. Competitive pricing
D. Cost-plus pricing
Answer: C
Rationale: Maturity is marked by intense competition and price pressure; firms match rivals’
prices to retain share. Penetration (A) occurs at introduction; skimming (B) at introduction of
innovative products; cost-plus ignores market dynamics.
WGU C201 BUSINESS ACUMEN – OBJECTIVE
ASSESSMENT 2 – VERSION A | COMPLETE
PRACTICE QUESTIONS WITH ACCURATE
ANSWERS
1. A firm’s 2024 balance sheet shows current assets of $4.2 million, inventory of $2.7 million,
and current liabilities of $1.8 million. Its quick ratio is closest to
A. 0.83
B. 1.4
C. 2.3
D. 0.48
Answer: A
Rationale: Quick ratio = (current assets – inventory) / current liabilities = ($4.2 m – $2.7 m) /
$1.8 m = $1.5 m / $1.8 m ≈ 0.83. Inventory is excluded because it is the least-liquid current
asset. Option B reverses the numerator and denominator; C uses current ratio; D omits half of
receivables.
2. Which action will improve a company’s current ratio without affecting its quick ratio?
A. Collecting accounts receivable
B. Purchasing additional inventory on credit
C. Paying off short-term bank debt with cash
D. Writing down obsolete inventory
Answer: B
Rationale: Buying inventory on credit increases both current assets (inventory) and current
liabilities (A/P) by equal dollar amounts. Because inventory is excluded from the quick ratio, the
quick ratio declines while the current ratio rises (larger base of current assets). Collecting A/R
(A) is neutral inside both ratios; paying debt (C) improves both; write-down (D) hurts both.
3. A company with a gross profit margin of 38 % and a net profit margin of 8 % experiences a 5
% decline in sales and a 3 % decline in cost of goods sold. Holding all other costs constant, the
gross margin will
A. Rise because COGS fell
B. Fall because sales fell more than COGS
C. Remain unchanged because both sales and COGS moved proportionally
, 2
D. Rise because operating leverage improves
Answer: A
Rationale: Gross margin = (Sales – COGS) / Sales. A 5 % sales drop reduces numerator and
denominator, but a 3 % COGS drop (smaller absolute decline) widens the spread, raising the
ratio. Numerical example: original sales 100, COGS 62, margin 38 %. New sales 95, COGS 60.14,
margin = (95 – 60.14) / 95 ≈ 36.7 % → increases from 38 % to 36.7 % is incorrect; recalculation
shows margin rises to ≈ 36.7 % is wrong; correct arithmetic: (95 – 60.14) / 95 = 34. ≈ 36.7
%, which is lower than 38 %. Correction: the margin falls, so the correct choice is B.
Answer: B
Rationale: Although both decline, the 5 % sales drop shrinks the denominator faster than the 3
% COGS drop shrinks the numerator, compressing the gross margin. Thus the margin falls,
contradicting the initial phrasing. Option B correctly captures the directional outcome.
4. During 2023, AlphaTech’s ROE was 15 %, asset turnover 1.2, and financial leverage 1.5. Its net
profit margin was closest to
A. 8.3 %
B. 12.5 %
C. 10.0 %
D. 18.0 %
Answer: A
Rationale: ROE = net margin × asset turnover × leverage → 15 % = margin × 1.2 × 1.5 → margin
= 15 % / 1.8 ≈ 8.3 %. Other choices reverse the formula or ignore leverage.
5. A capital-intensive utility has a debt-to-equity ratio of 2.0 and an interest-coverage ratio of
2.1. The greatest financial risk the firm faces is
A. Inability to service debt during a modest earnings downturn
B. Excessive equity dilution from new share issuance
C. Regulatory pressure to cut dividends
D. High tax shield volatility
Answer: A
Rationale: An interest-coverage ratio barely above 2.0 leaves little EBITDA cushion; a small
earnings decline could breach loan covenants. High leverage (2.0 D/E) amplifies the risk. B is
unlikely because high leverage discourages equity issuance; C and D are secondary.
, 3
6. A project requires an initial outlay of $500,000 and promises five equal annual cash inflows of
$140,000. If the company’s hurdle rate is 10 %, the project’s NPV is approximately
A. $31,000
B. –$31,000
C. $140,000
D. $0
Answer: A
Rationale: PV of annuity = $140,000 × [1 – (1 + 0.10)^-5] / 0.10 ≈ $140,000 × 3.7908 ≈ $530,712.
NPV = $530,712 – $500,000 ≈ $30,712 ≈ $31,000 positive. Negative choice (B) inverts sign; C is
undiscounted gross inflow; D assumes IRR = hurdle rate.
7. A sinking-fund provision in a bond issue is PRIMARILY designed to
A. Lower the bond’s coupon rate
B. Reduce default risk by systematic repayment
C. Increase the bond’s duration
D. Provide call protection to investors
Answer: B
Rationale: A sinking fund retires portions of principal before maturity, lowering credit risk. It
does not directly affect coupon (A) or duration (C); it may add call risk, not protection (D).
8. Which budgeting approach is MOST effective for aligning departmental spending with
corporate strategy?
A. Zero-based budgeting
B. Incremental budgeting
C. Flexible budgeting
D. Static budgeting
Answer: A
Rationale: Zero-based budgeting forces managers to justify every dollar from scratch, ensuring
alignment with current strategic priorities. Incremental merely adjusts prior year; flexible reacts
to volume, not strategy; static ignores both.
9. A company’s flexible-budget variance for direct labor is $45,000 favorable. This means that
A. Actual labor cost was $45,000 less than the static-budget figure
B. Actual labor cost was $45,000 less than the flexible-budget amount for actual output
C. Standard labor hours were higher than budgeted
, 4
D. Wage rates were higher than standard
Answer: B
Rationale: Flexible-budget variance compares actual costs to the flexible budget adjusted for
actual production volume. Favorable implies lower actual cost. A混淆 static variance; C and D
would typically be unfavorable.
10. A firm using absorption costing reports higher net income than under variable costing when
A. Production exceeds sales, deferring fixed overhead in inventory
B. Sales exceed production, liquidating LIFO layers
C. Variable manufacturing costs decline
D. Fixed SG&A increases
Answer: A
Rationale: Absorption costing capitalizes fixed manufacturing overhead into inventory. When
production > sales, some fixed overhead is inventoried, reducing COGS and increasing reported
income relative to variable costing. B reverses the effect; C and D affect both methods similarly.
11. Which of the following is a lagging indicator in a balanced scorecard?
A. Customer retention rate
B. Revenue growth
C. Employee engagement index
D. Number of new patents filed
Answer: B
Rationale: Revenue growth is a historical outcome metric. A is also lagging but often
categorized as customer perspective; C and D are leading indicators of future performance.
12. During the maturity stage of the product life cycle, the most likely pricing strategy is
A. Penetration pricing
B. Price skimming
C. Competitive pricing
D. Cost-plus pricing
Answer: C
Rationale: Maturity is marked by intense competition and price pressure; firms match rivals’
prices to retain share. Penetration (A) occurs at introduction; skimming (B) at introduction of
innovative products; cost-plus ignores market dynamics.
