D775- Introduction To Business Finance
Assessment Test Questions With
Correct Answers Graded A+ 2026
Accounts Receivable (A/R) Turnover ANSWER >> 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 ANSWER >> A type of financial ratio that evaluates how efficiently a firm
utilizes its assets to generate sales or revenue; also known as efficiency ratios.
1
,After-tax Cost of Debt ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> A financial arrangement in which a series of equal payments is
made or received at regular intervals over a specified period of time.
Assets ANSWER >> Resources owned by the company that have economic value.
Auction Markets ANSWER >> 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 ANSWER >> 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.
Before-tax Cost of Debt ANSWER >> 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.
2
, Balance Sheet ANSWER >> A financial statement that presents a company's financial
position at a specific point in time.
Bonds ANSWER >> 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 ANSWER >> Literal value or face value.
Business Finance ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> The mixture of debt and equity that a firm uses to
finance the company.
Cash Ratio ANSWER >> 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 ANSWER >> 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.
3
Assessment Test Questions With
Correct Answers Graded A+ 2026
Accounts Receivable (A/R) Turnover ANSWER >> 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 ANSWER >> A type of financial ratio that evaluates how efficiently a firm
utilizes its assets to generate sales or revenue; also known as efficiency ratios.
1
,After-tax Cost of Debt ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> A financial arrangement in which a series of equal payments is
made or received at regular intervals over a specified period of time.
Assets ANSWER >> Resources owned by the company that have economic value.
Auction Markets ANSWER >> 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 ANSWER >> 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.
Before-tax Cost of Debt ANSWER >> 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.
2
, Balance Sheet ANSWER >> A financial statement that presents a company's financial
position at a specific point in time.
Bonds ANSWER >> 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 ANSWER >> Literal value or face value.
Business Finance ANSWER >> 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 ANSWER >> 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 ANSWER >> 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 ANSWER >> The mixture of debt and equity that a firm uses to
finance the company.
Cash Ratio ANSWER >> 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 ANSWER >> 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.
3
