WGU D076 EXAM / WGU D076 FINANCIAL SKILLS
FOR MANANGER LATEST EXAM 2024 ACTUAL
QUESTIONS AND WELL ELABORATED ANSWERS
WITH RATIONALES (VERIFIED ANSWERS)
LATEST UPDATED VERSION 2024|ALREADY
GRADED A+
Beta - ANSWER A variable that describes how the price of a security varies with
the market.
Business Finance - ANSWER An area of finance that deals with sources of
funding, the capital structure of corporations, the actions that managers take to
increase the value of the firm to its owners, and the tools and analysis used to
allocate financial resources.
Capital Budgeting Criteria - ANSWER Metrics and calculations used to determine
whether a project or asset will add value and be a worthwhile investment.
Capital Investment - ANSWER The sum of money invested in a business to
purchase long-term assets to further its objective of maximizing owner wealth.
Capital Structure - ANSWER The mixture of debt and equity used to finance a firm.
Cumulative - ANSWER A feature of preferred stock specifying that if a company
skips payment of a preferred stock dividend one year, it is still required to pay that
dividend sometime in the future before paying any common dividends.
Defensive Assets - ANSWER Companies or securities with beta less than 1.
Discount Rate - ANSWER The name for interest rate when used in time value of
money calculations.
Dividend Discount Model - ANSWER A model used to evaluate common stock that
calculates the value of a share of common stock today by taking the present value of
future dividend cash flows.
Efficient market - ANSWER A market in which prices fully relect all the available
information about a specific security.
Holding Period Return - ANSWER The return over the entire period that an
investor owns a financial security.
,Internal Rate of Return (IRR) - ANSWER The rate of return that a firm earns on its
capital projects.
Market Risk - ANSWER Risk that is inherent in the economy as a whole and
cannot be diversified away; also called systematic risk or nondiversifiable risk.
Market-to-book Ratio (M/B Ratio) - ANSWER A market ratio found by market value
of equity divided by book value of equity.
Nonsystematic Risk - ANSWER Risk that results from factors at a particular firm
and can be reduced through diversification; also called firm-specific risk or
idiosyncratic risk.
Perpetuity Model - ANSWER A formula used to value preferred stock that is based
on the calculation of a perpetuity.
Plowback Ratio - ANSWER The percent of net income retained in the firm; also
called the retention ratio.
Quick Ratio - ANSWER A liquidity ratio found by current assets less inventory,
divided by current liabilities; also called the acid-test ratio.
Return On Assets (ROA) - ANSWER A profitability ratio found by net income
divided by total assets.
Return - ANSWER The money gained or lost on an investment over a certain
period of time.
Risk Retention - ANSWER A decision to take responsibility for a particular risk.
Securitization - ANSWER The process of combining several types of contractual
debt (such as mortgages) and reselling them as a package to investors.
Upside Potential - ANSWER The unlimited earnings potential of equity ownership.
Variable Expenditures - ANSWER An expense that you have direct control over
and that can change from period to period.
Profitability - ANSWER Which type of ratio should be used to examine the cost
efficiency of a firm's production?
Current ratio - ANSWER Which ratio helps an analyst evaluate whether a company
can cover its short-term obligations?
Quick ratio - ANSWER Which ratio should an analyst use to consider the effect of
a firm's inventory on a firm's ability to meet current obligations?
Why is it important to consider the time value of money in an ideal evaluation method
for capital investment? - ANSWER Because the value of a cash flow today is
different from the value of a cash flow of the same dollar amount in 10 years
,Discretionary account - ANSWER What kind of account is Notes payable?
Compound Interest equation - ANSWER Total Interest=Principal×(1+Interest
Rate)^Number of Periods−Principal
Present Value of a Perpetuity equation - ANSWER Present Value=PMT/i
What does the DuPont Framework tell us? - ANSWER One is that return on all the
investors (debtholders and equity holders) is measured by the firm's profitability and
asset usage efficiency. The effect of debt, or in other words, the effect of the capital
structure of the firm, appears only on the return on equity.
How can you reduce DFN? - ANSWER Slow Sales Growth
Examine Capacity
Constraints Lower
Dividend Payout
Increase Net Margin
What are the advantages of NPV? - ANSWER NPV: Considers time value of
money
Calculates value added to the firm
Considers risk and required return
What should you be aware of when calculating IRR? - ANSWER The solution can
only be obtained through trial and error (or interpolation).
What assumptions does the Gordon Growth Model make in order to make the
dividend discount model usable? - ANSWER Dividends are paid every year.
Dividends grow at a constant rate forever
What should you considering in the capital budgeting process of capital investment?
- ANSWER For the capital budgeting process of capital investment, it is essential
to consider the time value of money, the risk of a project, and all the cash flows of a
project to evaluate whether the project is worthwhile.
What is the ideal evaluation method for capital investment? - ANSWER It includes
all cash flows that occur during the life of the project.
It considers the time value of money.
It incorporates the cost of capital—or in other words, the required rate of return on
the project.
What do market ratios measure? - ANSWER Market ratios are used to evaluate
the current share prices of a public firm's stock.
Debt-to-Equity Ratio=Total Liabilities/Total Owners' Equity - ANSWER Debt-to-
Equity Ratio equation
, What are profitability ratios used for? - ANSWER Profitability ratios help you
understand a company's performance and cost efficiency and thereby measure a
company's profitability.
What are the three main comparison methods used in ratio analysis? - ANSWER
trend analysis, cross-sectional analysis, and progress measurement
Accounting - ANSWER The system of recording, reporting, and summarizing past
financial information and transactions.
Accounts Receivable Turnover (AR Turnover) - ANSWER An activity ratio found by
credit sales divided by accounts receivable.
Activity Ratios - ANSWER A category of ratios that measure how well a company
uses its assets to generate sales or cash, showing the firm's operational efficiency
and profitability.
Additional Funds Needed (AFN) - ANSWER Another name for the discretionary
financing needed or external financing needed. It represents the additional financing
needed given a firm's expectations for future growth.
Affirmative Covenants - ANSWER A bond covenant that describes things the
company pledges itself to do in order to protect bondholders.
Agency Costs - ANSWER Costs that are incurred when management does not act
in the best interest of shareholders.
Agency Problem - ANSWER When the agent (the management) does not act in
the best interest of the principle (the owners).
Aggressive Assets - ANSWER Companies or securities with beta greater than 1.
Annual Percentage Rate - ANSWER The annual interest rate that is charged for
borrowing money or that is earned through investment.
Annuity Due - ANSWER A series of equal payments made at the beginning of
consecutive periods.
Annuity - ANSWER A stream of cash flows of an equal amount paid every
consecutive period.
Asset Pricing - ANSWER The process of valuing assets.
Auction Market - ANSWER A secondary market with a physical location and where
prices are determined by investors' willingness to pay.
Average Collection Period (ACP) - ANSWER An activity ratio found by the number
of days in a year (365) divided by AR turnover.
FOR MANANGER LATEST EXAM 2024 ACTUAL
QUESTIONS AND WELL ELABORATED ANSWERS
WITH RATIONALES (VERIFIED ANSWERS)
LATEST UPDATED VERSION 2024|ALREADY
GRADED A+
Beta - ANSWER A variable that describes how the price of a security varies with
the market.
Business Finance - ANSWER An area of finance that deals with sources of
funding, the capital structure of corporations, the actions that managers take to
increase the value of the firm to its owners, and the tools and analysis used to
allocate financial resources.
Capital Budgeting Criteria - ANSWER Metrics and calculations used to determine
whether a project or asset will add value and be a worthwhile investment.
Capital Investment - ANSWER The sum of money invested in a business to
purchase long-term assets to further its objective of maximizing owner wealth.
Capital Structure - ANSWER The mixture of debt and equity used to finance a firm.
Cumulative - ANSWER A feature of preferred stock specifying that if a company
skips payment of a preferred stock dividend one year, it is still required to pay that
dividend sometime in the future before paying any common dividends.
Defensive Assets - ANSWER Companies or securities with beta less than 1.
Discount Rate - ANSWER The name for interest rate when used in time value of
money calculations.
Dividend Discount Model - ANSWER A model used to evaluate common stock that
calculates the value of a share of common stock today by taking the present value of
future dividend cash flows.
Efficient market - ANSWER A market in which prices fully relect all the available
information about a specific security.
Holding Period Return - ANSWER The return over the entire period that an
investor owns a financial security.
,Internal Rate of Return (IRR) - ANSWER The rate of return that a firm earns on its
capital projects.
Market Risk - ANSWER Risk that is inherent in the economy as a whole and
cannot be diversified away; also called systematic risk or nondiversifiable risk.
Market-to-book Ratio (M/B Ratio) - ANSWER A market ratio found by market value
of equity divided by book value of equity.
Nonsystematic Risk - ANSWER Risk that results from factors at a particular firm
and can be reduced through diversification; also called firm-specific risk or
idiosyncratic risk.
Perpetuity Model - ANSWER A formula used to value preferred stock that is based
on the calculation of a perpetuity.
Plowback Ratio - ANSWER The percent of net income retained in the firm; also
called the retention ratio.
Quick Ratio - ANSWER A liquidity ratio found by current assets less inventory,
divided by current liabilities; also called the acid-test ratio.
Return On Assets (ROA) - ANSWER A profitability ratio found by net income
divided by total assets.
Return - ANSWER The money gained or lost on an investment over a certain
period of time.
Risk Retention - ANSWER A decision to take responsibility for a particular risk.
Securitization - ANSWER The process of combining several types of contractual
debt (such as mortgages) and reselling them as a package to investors.
Upside Potential - ANSWER The unlimited earnings potential of equity ownership.
Variable Expenditures - ANSWER An expense that you have direct control over
and that can change from period to period.
Profitability - ANSWER Which type of ratio should be used to examine the cost
efficiency of a firm's production?
Current ratio - ANSWER Which ratio helps an analyst evaluate whether a company
can cover its short-term obligations?
Quick ratio - ANSWER Which ratio should an analyst use to consider the effect of
a firm's inventory on a firm's ability to meet current obligations?
Why is it important to consider the time value of money in an ideal evaluation method
for capital investment? - ANSWER Because the value of a cash flow today is
different from the value of a cash flow of the same dollar amount in 10 years
,Discretionary account - ANSWER What kind of account is Notes payable?
Compound Interest equation - ANSWER Total Interest=Principal×(1+Interest
Rate)^Number of Periods−Principal
Present Value of a Perpetuity equation - ANSWER Present Value=PMT/i
What does the DuPont Framework tell us? - ANSWER One is that return on all the
investors (debtholders and equity holders) is measured by the firm's profitability and
asset usage efficiency. The effect of debt, or in other words, the effect of the capital
structure of the firm, appears only on the return on equity.
How can you reduce DFN? - ANSWER Slow Sales Growth
Examine Capacity
Constraints Lower
Dividend Payout
Increase Net Margin
What are the advantages of NPV? - ANSWER NPV: Considers time value of
money
Calculates value added to the firm
Considers risk and required return
What should you be aware of when calculating IRR? - ANSWER The solution can
only be obtained through trial and error (or interpolation).
What assumptions does the Gordon Growth Model make in order to make the
dividend discount model usable? - ANSWER Dividends are paid every year.
Dividends grow at a constant rate forever
What should you considering in the capital budgeting process of capital investment?
- ANSWER For the capital budgeting process of capital investment, it is essential
to consider the time value of money, the risk of a project, and all the cash flows of a
project to evaluate whether the project is worthwhile.
What is the ideal evaluation method for capital investment? - ANSWER It includes
all cash flows that occur during the life of the project.
It considers the time value of money.
It incorporates the cost of capital—or in other words, the required rate of return on
the project.
What do market ratios measure? - ANSWER Market ratios are used to evaluate
the current share prices of a public firm's stock.
Debt-to-Equity Ratio=Total Liabilities/Total Owners' Equity - ANSWER Debt-to-
Equity Ratio equation
, What are profitability ratios used for? - ANSWER Profitability ratios help you
understand a company's performance and cost efficiency and thereby measure a
company's profitability.
What are the three main comparison methods used in ratio analysis? - ANSWER
trend analysis, cross-sectional analysis, and progress measurement
Accounting - ANSWER The system of recording, reporting, and summarizing past
financial information and transactions.
Accounts Receivable Turnover (AR Turnover) - ANSWER An activity ratio found by
credit sales divided by accounts receivable.
Activity Ratios - ANSWER A category of ratios that measure how well a company
uses its assets to generate sales or cash, showing the firm's operational efficiency
and profitability.
Additional Funds Needed (AFN) - ANSWER Another name for the discretionary
financing needed or external financing needed. It represents the additional financing
needed given a firm's expectations for future growth.
Affirmative Covenants - ANSWER A bond covenant that describes things the
company pledges itself to do in order to protect bondholders.
Agency Costs - ANSWER Costs that are incurred when management does not act
in the best interest of shareholders.
Agency Problem - ANSWER When the agent (the management) does not act in
the best interest of the principle (the owners).
Aggressive Assets - ANSWER Companies or securities with beta greater than 1.
Annual Percentage Rate - ANSWER The annual interest rate that is charged for
borrowing money or that is earned through investment.
Annuity Due - ANSWER A series of equal payments made at the beginning of
consecutive periods.
Annuity - ANSWER A stream of cash flows of an equal amount paid every
consecutive period.
Asset Pricing - ANSWER The process of valuing assets.
Auction Market - ANSWER A secondary market with a physical location and where
prices are determined by investors' willingness to pay.
Average Collection Period (ACP) - ANSWER An activity ratio found by the number
of days in a year (365) divided by AR turnover.
