WGU D775 Introduction to Business Finance
Practice Questions & Verified Answers | 2026 |
Graded A+
1. If a company experiences a significant rise in raw material costs, what type of
inflation might this lead to, and what would be the likely impact on their pricing
strategy?
Demand-pull inflation, leading to decreased prices for their products.
Hyperinflation, resulting in price stabilization.
Deflation, causing a reduction in production costs.
Cost-push inflation, leading to increased prices for their products.
2. If an investment has a payback period of 3 years and generates cash flows of
$10,000 annually, what would be the initial investment amount if the cash flows are
consistent?
$40,000
$20,000
$10,000
$30,000
3. If a company has total liabilities of $500,000 and total equity of $250,000, what is
its debt-to-equity (D/E) ratio, and what does this imply about its financial structure?
, 0.5, indicating a lower reliance on debt financing.
1.0, indicating an equal proportion of debt and equity.
1.5, indicating a balanced financial structure.
2.0, indicating a higher reliance on debt financing.
4. Describe how an annuity functions as a financial product and its common uses.
An annuity is a short-term loan that must be repaid within a year.
An annuity is a type of stock investment that fluctuates with market
conditions.
An annuity functions as a financial product that provides regular payments over
time, often used for retirement income or to manage cash flow.
An annuity is a financial tool used only for tax evasion.
5. Corporate bonds are:
Bonds that are issued by corporations
Bonds issued by foreign governments or by foreign corporations
Bonds issued by state and local government
Bonds issued by the federal government, sometimes referred to as
government bonds
6. Describe how discounting relates to the time value of money.
Discounting accounts for the decrease in value of future money compared to
present money due to interest rates, inflation, and risk.
Discounting only applies to corporate bonds and not other financial
instruments.
, Discounting is irrelevant in time value of money calculations.
Discounting is used to increase the value of future money to match present
money.
7. Retained earnings are
the profits that are being distributed to the owners.
the money the company has earned but has yet to collect from
customers. the amount of money the company retains to pay bills.
the profits that are reinvested into the company instead of being distributed
to the owners
8. What is the definition of the payback period in investment terms?
The amount of time it takes for an investment to generate enough cash flows
to recover its initial cost.
The difference between total revenues and total expenses of an investment.
The total profit generated by an investment over its lifetime.
The rate of return expected from an investment over a specific period.
9. If a company has $200,000 in current assets and $150,000 in current liabilities,
what does this indicate about the company's liquidity?
The company is unable to pay its long-term debts.
The company has negative equity.
The company has a positive working capital, indicating good liquidity.
The company is facing liquidity issues.
10. What is the definition of an annuity in financial terms?
, A financial statement that summarizes a company's revenues and expenses.
A type of investment that involves purchasing shares in a company.
A financial arrangement in which a series of equal payments is made or
received at regular intervals over a specified period of time.
A loan that is secured by collateral.
11. The Consumer Price Index, or CPI, is:
an equally weighted set of prices of household goods a
measure of average prices in retail outlets in a country
a variable weighted sum of the prices of a basket of goods and services used
by a typical household or consumer
a variable weighted sum of the prices of a portfolio of assets held by a typical
household or consumer
a measure of the growth of pension funds and other assets in a country.
12. What is the definition of a coupon in the context of bonds?
The fee charged by brokers for bond transactions.
The initial price paid for the bond.
The periodic interest payment made to bondholders during the life of the
bond.
The total amount paid to bondholders at maturity.
13. Which of the following statements is true about the relationship between current
assets and fixed assets?
The sum of current assets and fixed assets is the total asset of the firm
Practice Questions & Verified Answers | 2026 |
Graded A+
1. If a company experiences a significant rise in raw material costs, what type of
inflation might this lead to, and what would be the likely impact on their pricing
strategy?
Demand-pull inflation, leading to decreased prices for their products.
Hyperinflation, resulting in price stabilization.
Deflation, causing a reduction in production costs.
Cost-push inflation, leading to increased prices for their products.
2. If an investment has a payback period of 3 years and generates cash flows of
$10,000 annually, what would be the initial investment amount if the cash flows are
consistent?
$40,000
$20,000
$10,000
$30,000
3. If a company has total liabilities of $500,000 and total equity of $250,000, what is
its debt-to-equity (D/E) ratio, and what does this imply about its financial structure?
, 0.5, indicating a lower reliance on debt financing.
1.0, indicating an equal proportion of debt and equity.
1.5, indicating a balanced financial structure.
2.0, indicating a higher reliance on debt financing.
4. Describe how an annuity functions as a financial product and its common uses.
An annuity is a short-term loan that must be repaid within a year.
An annuity is a type of stock investment that fluctuates with market
conditions.
An annuity functions as a financial product that provides regular payments over
time, often used for retirement income or to manage cash flow.
An annuity is a financial tool used only for tax evasion.
5. Corporate bonds are:
Bonds that are issued by corporations
Bonds issued by foreign governments or by foreign corporations
Bonds issued by state and local government
Bonds issued by the federal government, sometimes referred to as
government bonds
6. Describe how discounting relates to the time value of money.
Discounting accounts for the decrease in value of future money compared to
present money due to interest rates, inflation, and risk.
Discounting only applies to corporate bonds and not other financial
instruments.
, Discounting is irrelevant in time value of money calculations.
Discounting is used to increase the value of future money to match present
money.
7. Retained earnings are
the profits that are being distributed to the owners.
the money the company has earned but has yet to collect from
customers. the amount of money the company retains to pay bills.
the profits that are reinvested into the company instead of being distributed
to the owners
8. What is the definition of the payback period in investment terms?
The amount of time it takes for an investment to generate enough cash flows
to recover its initial cost.
The difference between total revenues and total expenses of an investment.
The total profit generated by an investment over its lifetime.
The rate of return expected from an investment over a specific period.
9. If a company has $200,000 in current assets and $150,000 in current liabilities,
what does this indicate about the company's liquidity?
The company is unable to pay its long-term debts.
The company has negative equity.
The company has a positive working capital, indicating good liquidity.
The company is facing liquidity issues.
10. What is the definition of an annuity in financial terms?
, A financial statement that summarizes a company's revenues and expenses.
A type of investment that involves purchasing shares in a company.
A financial arrangement in which a series of equal payments is made or
received at regular intervals over a specified period of time.
A loan that is secured by collateral.
11. The Consumer Price Index, or CPI, is:
an equally weighted set of prices of household goods a
measure of average prices in retail outlets in a country
a variable weighted sum of the prices of a basket of goods and services used
by a typical household or consumer
a variable weighted sum of the prices of a portfolio of assets held by a typical
household or consumer
a measure of the growth of pension funds and other assets in a country.
12. What is the definition of a coupon in the context of bonds?
The fee charged by brokers for bond transactions.
The initial price paid for the bond.
The periodic interest payment made to bondholders during the life of the
bond.
The total amount paid to bondholders at maturity.
13. Which of the following statements is true about the relationship between current
assets and fixed assets?
The sum of current assets and fixed assets is the total asset of the firm
