WGU D076 (FINANCE FOR MANAGERS) FINAL EXAM /ACTUAL EXAM WITH CORRECT DETAILED ANSWERS |UPDATED 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
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