D775 WGU EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026/2027
Accounts Receivable (A/R) Turnover - Answers A type of liquidity ratio that describes the
number of times a firm's accounts receivable account is paid off. Accounts Receivable Turnover
= Credit Sales ÷ Accounts Receivable.
Activity Ratios - Answers A type of financial ratio that evaluates how efficiently a firm utilizes its
assets to generate sales or revenue; also known as efficiency ratios.
After-tax Cost of Debt - Answers An adjustment of the before-tax cost of debt that considers the
tax deductions on interest expenses. It reflects the actual cost to a firm for debt financing after
benefiting from tax breaks.
Agency Costs - Answers Costs that are incurred by the firm when management and employees
of a company do not act in the best interests of shareholders.
Agency Problem - Answers A conflict of interest inherent in relationships where one party is
expected to act in another's best interests, such as between shareholders and company
management.
Annual Interest Rate - Answers The annualized cost of borrowing or the yearly interest rate
charged on a loan or credit balance. Also known as annual percentage rate (APR).
Annuity - Answers A financial arrangement in which a series of equal payments is made or
received at regular intervals over a specified period of time.
Assets - Answers Resources owned by the company that have economic value.
Auction Markets - Answers Financial markets in which buyers and sellers submit competitive
bids and offers, with transactions occurring at prices that match the highest bid with the lowest
offer.
Average Collection Period - Answers A type of liquidity ratio that calculates the average number
of days it takes for a company to collect its receivables. Average Collection Period = Accounts
Receivable ÷ Daily Credit Sales.
Balance Sheet - Answers A financial statement that presents a company's financial position at a
specific point in time.
Before-tax Cost of Debt - Answers The interest rate on loans or bonds. If a bank provides an
interest rate on a small business loan of 9.5%, then 9.5% is the before-tax cost of debt.
Board of Directors (BOD) - Answers A group of individuals elected by a company's shareholders
to oversee the management and make key decisions on corporate policies and strategy.
Bonds - Answers Debt securities issued by corporations or governments to raise capital, where
the issuer agrees to pay back the principal along with interest on specified dates.
, Book Value - Answers Literal value or face value.
Business Finance - Answers The area of the business in which 1) financial measures are used
to help management make decisions (ratio analysis), 2) financial analysts use mathematical
models to select what projects to invest in (capital budgeting), and 3) financial analysts use the
cost of capital to determine whether these projects should be financed with either debt or equity,
and which type of each.
Capital Appreciation - Answers When a stock is bought at a lower price than what it is sold.
Subtracting the lower purchase price from the higher sales price is the appreciation.
Capital Budgeting - Answers The process by which businesses evaluate potential investments
to determine if they are worth pursuing. It assesses projected cash flows, costs, and returns of
projects like new machinery or acquisitions to ensure efficient resource allocation and
profitability.
Capital Structure - Answers The mixture of debt and equity that a firm uses to finance the
company.
Cash Ratio - Answers A type of liquidity ratio that provides insight into a company's ability to pay
off short-term liabilities with its cash on hand. Cash Ratio = Cash ÷ Current Liabilities.
Common Stock - Answers A type of security that represents ownership in a corporation,
granting shareholders voting rights and a claim on a portion of the company's profits through
dividends.
Compound Interest - Answers Interest calculated on both the initial principal and the
accumulated interest from previous periods. In the context of the time value of money,
compound interest allows money to grow at an increasing rate over time, as interest earned in
each period is added to the principal, and future interest is calculated on this larger sum.
Compounding - Answers The process of calculating how a sum of money grows over time as
interest is added to both the initial principal and accumulated interest. In the context of the time
value of money, compounding is used to determine the future value of a lump sum or a series of
payments.
Compounding Frequency - Answers The number of times interest is applied to the principal
balance of an investment or loan within a specific period, typically a year. Common
compounding frequencies include annually, semiannually, quarterly, monthly, or daily. The
compounding frequency impacts how quickly an investment grows or how much interest is
accrued on a loan. The more frequent the compounding, the greater the total amount of interest
earned or paid, as interest is calculated on previously accumulated interest as well as the initial
principal.
Consumer Confidence - Answers A measure of how optimistic or pessimistic consumers are
Accounts Receivable (A/R) Turnover - Answers A type of liquidity ratio that describes the
number of times a firm's accounts receivable account is paid off. Accounts Receivable Turnover
= Credit Sales ÷ Accounts Receivable.
Activity Ratios - Answers A type of financial ratio that evaluates how efficiently a firm utilizes its
assets to generate sales or revenue; also known as efficiency ratios.
After-tax Cost of Debt - Answers An adjustment of the before-tax cost of debt that considers the
tax deductions on interest expenses. It reflects the actual cost to a firm for debt financing after
benefiting from tax breaks.
Agency Costs - Answers Costs that are incurred by the firm when management and employees
of a company do not act in the best interests of shareholders.
Agency Problem - Answers A conflict of interest inherent in relationships where one party is
expected to act in another's best interests, such as between shareholders and company
management.
Annual Interest Rate - Answers The annualized cost of borrowing or the yearly interest rate
charged on a loan or credit balance. Also known as annual percentage rate (APR).
Annuity - Answers A financial arrangement in which a series of equal payments is made or
received at regular intervals over a specified period of time.
Assets - Answers Resources owned by the company that have economic value.
Auction Markets - Answers Financial markets in which buyers and sellers submit competitive
bids and offers, with transactions occurring at prices that match the highest bid with the lowest
offer.
Average Collection Period - Answers A type of liquidity ratio that calculates the average number
of days it takes for a company to collect its receivables. Average Collection Period = Accounts
Receivable ÷ Daily Credit Sales.
Balance Sheet - Answers A financial statement that presents a company's financial position at a
specific point in time.
Before-tax Cost of Debt - Answers The interest rate on loans or bonds. If a bank provides an
interest rate on a small business loan of 9.5%, then 9.5% is the before-tax cost of debt.
Board of Directors (BOD) - Answers A group of individuals elected by a company's shareholders
to oversee the management and make key decisions on corporate policies and strategy.
Bonds - Answers Debt securities issued by corporations or governments to raise capital, where
the issuer agrees to pay back the principal along with interest on specified dates.
, Book Value - Answers Literal value or face value.
Business Finance - Answers The area of the business in which 1) financial measures are used
to help management make decisions (ratio analysis), 2) financial analysts use mathematical
models to select what projects to invest in (capital budgeting), and 3) financial analysts use the
cost of capital to determine whether these projects should be financed with either debt or equity,
and which type of each.
Capital Appreciation - Answers When a stock is bought at a lower price than what it is sold.
Subtracting the lower purchase price from the higher sales price is the appreciation.
Capital Budgeting - Answers The process by which businesses evaluate potential investments
to determine if they are worth pursuing. It assesses projected cash flows, costs, and returns of
projects like new machinery or acquisitions to ensure efficient resource allocation and
profitability.
Capital Structure - Answers The mixture of debt and equity that a firm uses to finance the
company.
Cash Ratio - Answers A type of liquidity ratio that provides insight into a company's ability to pay
off short-term liabilities with its cash on hand. Cash Ratio = Cash ÷ Current Liabilities.
Common Stock - Answers A type of security that represents ownership in a corporation,
granting shareholders voting rights and a claim on a portion of the company's profits through
dividends.
Compound Interest - Answers Interest calculated on both the initial principal and the
accumulated interest from previous periods. In the context of the time value of money,
compound interest allows money to grow at an increasing rate over time, as interest earned in
each period is added to the principal, and future interest is calculated on this larger sum.
Compounding - Answers The process of calculating how a sum of money grows over time as
interest is added to both the initial principal and accumulated interest. In the context of the time
value of money, compounding is used to determine the future value of a lump sum or a series of
payments.
Compounding Frequency - Answers The number of times interest is applied to the principal
balance of an investment or loan within a specific period, typically a year. Common
compounding frequencies include annually, semiannually, quarterly, monthly, or daily. The
compounding frequency impacts how quickly an investment grows or how much interest is
accrued on a loan. The more frequent the compounding, the greater the total amount of interest
earned or paid, as interest is calculated on previously accumulated interest as well as the initial
principal.
Consumer Confidence - Answers A measure of how optimistic or pessimistic consumers are
