WGU D076 Finance for Managers Questions And Answers 2024 Graded A+
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WGU D076 Finance
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WGU D076 Finance
WGU D076 Finance for Managers
Questions And Answers 2024
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 th...
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WGU D076 Finance for Managers
Questions And Answers 2024
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.
Balance Sheet Forecasting - Answer Using sales growth and the profit forecast to
construct a pro forma balance sheet to understand the future implications of the
sources and uses of finances.
Banks and Credit Unions - Answer Receive deposits and extend loans to individuals
and businesses.
Benchmarking - Answer The process of completing a financial analysis to compare a
firm's financial performance to that of other similar firms.
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