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D076 Finance Skills for Managers review
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"A company is trying to decide which of four projects to invest in. - "W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also needs to ke...

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  • February 3, 2024
  • 32
  • 2023/2024
  • Exam (elaborations)
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  • d076 finance skills for managers review

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  • A/AS Level
  • AQA
  • WGU
  • WGU D076
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D076 Finance Skills for Managers review
"A company is trying to decide which of four projects to invest in. - ✔✔



"W&H Company wants to create a cash budget to better manage its cash flows. The financial manager
knows that the firm's labor costs and materials costs are too high for the level of sales each month. The
firm also needs to keep better track of its cash flows to assess its need for additional financing through
short-term loans. - ✔✔



A company called Bobby's Books is considering purchasing a new bookbinding machine. The company
calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase
the bookbinding machine? - ✔✔Yes, because the IRR exceeds the cost of capital.



A company currently has a ratio of 1.5 but hopes to improve the ratio to 2 to align more with the
industry benchmark. To achieve this goal, costs were cut in production through an investment in
efficient equipment, and the company achieved a higher profit margin. If this continues, you are certain
that the firm will achieve its goal in two years. What is this an example of? - ✔✔Progress measurement



A company is considering five projects that are not mutually exclusive. However, the company does not
have enough money to do all of them. In order to prioritize projects that fit within the company's
budget, which capital budgeting method should be used? - ✔✔Profitability index (PI)



A company is trying to finance a project with a mortgage loan from a bank. The company's assessment
of the project indicates that the company may experience several years of loss until the project becomes
profitable. This means that the company might lose its ability to pay back the loan and the interest on
the mortgage. What action might the bank take to protect its interest? - ✔✔Set a strict covenant that
the company cannot easily achieve.



A company that produces soap, shampoo, lotion, and other personal care products has recently taken a
hit due to a competitor's new product line. The company decides to reduce wages for its labor force to
save money while the company focuses on building up its reputation again, but the company's labor
force goes on strike to protest the pay cuts. What type of risk does the strike represent? - ✔✔
Idiosyncratic risk

,A company's officers and board of directors are selling their stocks in the firm at higher prices due to
false accounting reports that made the stock seem more valuable than it truly was. Which ethical issue is
occurring in this situation? - ✔✔Agency problem due to conflicting interests



A financial analyst for the company Bobby's Books has been asked to evaluate a potential investment
using a method that considers the time value of money. Is there more than one way to do this? - ✔✔
Yes, the analyst could use both the NPV and the IRR.



A firm has paid off its short-term loans more quickly in the past couple of years. What might this trend
indicate about the firm's financial ratios? - ✔✔Its liquidity ratio is increasing.



A large corporation is looking to merge with another large corporation. Which financial institution can
help them do this? - ✔✔Investment bank



A local start-up company just hit its five-year anniversary and is planning an initial public offering
sometime this year. In order to issue public stock, which market will the company use? - ✔✔Primary
market



A potential project to expand the size of an apartment complex will cost $100,000. Its calculated net
present value is $5,000. Given this information, which statement is correct? - ✔✔The project should be
accepted because it has a positive NPV.



About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had
2.54% interest. This week, the 1-year Treasury bill has an interest rate of 3.13%, while the 10-year
Treasury note has an interest rate of 2.28%. What does this information indicate about the future
economy? - ✔✔It may indicate an economic downturn.



After W&H Inc. has developed a cash budget, what should the company do in the following months? -
✔✔It should monitor its actual cash flows and then revise the cash budget if needed.

,Alphabet Co. has $50,000 to spend on capital investment projects for the next year. It will do as many
projects as it has cash for. Alphabet Co. calculates the potential incremental cash flows and costs of the
projects as well as the NPV, IRR, and PI for each project. How should the company decide which projects
to invest in if it wants to maximize the total amount of value created? - ✔✔It should choose the
projects with the highest PIs until all capital has been used.



An investor just purchased a bond for $973 that has a par value of $1,000. What type of bond is this? -
✔✔A discount bond



Beckingham Sports is an American sporting goods company. Based on a $400,000 market study and a
$600,000 fee for consulting spent prior to the project, the firm can increase its annual operating cash
flow by $3,000,000 by selling overseas. Because the firm was considering the expansion, it spent
$2,000,000 to purchase a land for new factory and equipment. However, someone is making an offer to
pay the company $3,000,000 for the land it purchased for the new factory. What is relevant to include in
the company's capital budgeting decision? - ✔✔3,000,000 for the offer price of the land



BigDog and SmallDog are two companies that have an identical return on equity. One difference
between the two companies is that BigDog has 40% of assets financed by debt while SmallDog has 100%
of assets financed by equity. What can you conclude about BigDog and SmallDog? - ✔✔SmallDog has a
higher ROA than BigDog.



Company ABC would like to continue to grow, but in order to maintain control of all decisions and
ownership, it wants to avoid issuing new stock. Which calculation will show the company's leadership
the fastest that ABC can grow? - ✔✔Sustainable growth rate



Endothon Company has decided to move its production from the United States to a foreign country.
Which situation below would constitute an unethical action by the company? - ✔✔Saving money by
paying inadequate wages to workers overseas



Firm A has an average collection period of 67 days, and the industry norm is 40 days. What can the firm
do in order to be competitive with accounts receivable management in the industry? - ✔✔Tighten the
credit standards for its customers.

, Five years ago, Ahmed decided he was going to save up to purchase a car with cash. The car he wants is
priced at $15,000. He saved $245 a month in an account that gave him enough interest to have $15,000
in five years. Today, he pulled out $15,000 from his account to buy the car, but the price of the car is
now $16,562. Which component of the required rate of return did Ahmed forget to consider? - ✔✔
Inflation



For what purpose are market ratios used? - ✔✔To evaluate the current share price of a public firm's
stock



Hannah is the financial manager of a firm. A project that she has recommended has been approved and
will cost $5 million. Since the company does not have enough cash on reserve, Hannah must figure out
how to raise enough money to start the project. She can choose whether to issue new bonds, new
stocks, a mortgage loan, or some combination of those options. What task is Hannah performing in this
scenario? - ✔✔Making a financing decision



How are non-incremental cash flows different from incidental cash flows? - ✔✔Incidental cash flows
are indirect cash flows that are not explicitly revenues or costs. Nevertheless, they must be included in
the analysis.



How can a company reduce its discretionary financing needed (DFN)? - ✔✔Increase the net margin.



How can a firm grow its fixed assets if it is expecting growth but has reached capacity with its fixed
assets? - ✔✔Invest a substantial amount of money at one time to increase capacity.



How can agency costs be mitigated? - ✔✔Aligning managers' interests with shareholders' interests



How can agency problems be reduced through corporate control? - ✔✔Executive compensation



How can having more debt benefit a company? - ✔✔Interest expense on debts is paid before taxes are
calculated.

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