WGU D076

D076 5.0 (1 review) Students also studied Terms in this set (320) Social SciencesEconomics Finance Save D076 All Module Questions 249 terms MordorStandardTime Preview

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40 terms che In which way is accounting different from finance? Accounting is backward looking, while finance is focused on the future.What is the main question that both individuals and companies must consider when making financial decisions to reach a goal?Will the benefits of the action outweigh the costs?A financial manager at a company is trying to determine whether to issue new stocks or new bonds to cover the costs of a project the company is doing the next year.Making financing decisions How can investing help a person reach personal financial goals?It provides access to potential revenue or increases in value to help meet goals faster.A sign company is planning to have an initial public offering (IPO). In which type of market will its stock first be sold to the public?Primary market Which type of economic indicator changes after the economy changes and helps identify trends in the long term?Lagging indicator How does an investment institution, such as a mutual fund, facilitate the circulation of money in the economy?By providing individuals and firms access to financial markets to buy or sell financial securities Which type of economic indicator is used by governments and policymakers to implement or alter policies in an effort to avoid or minimize the effects of an economic downturn?Leading indicator

Suppose an individual does not eat chocolate because eating chocolate goes against his personal beliefs. Which type of standard is this?Moral Which action is based upon moral standards?Although there is no company policy regarding it, a financial manager chooses not to accept gifts from the company's clients to ensure that she does not create a conflict of interest.What should a potential bondholder (lender) do to prevent a company (borrower) from taking on risky projects?Set strict covenants that the company cannot uphold if it chooses a risky project What is the term for an individual's beliefs concerning what is and is not acceptable to personally do?Morals Which factor contributes to the inflation of the prices of goods and services over time?Increase in demand for goods and services Why can compounding interest be a good tool but also a significant detriment?Compounding interest can be a good tool because it allows a lender to gain interest on interest, but it is a detriment because it causes a borrower to pay interest on interest.Which component of the required rate of return takes into account the loss of potential gain from other alternatives?Opportunity cost How is inflation calculated?Inflation is calculated by determining the rate at which the average price level of particular goods and services increases over a period of time in an economy.Based on the following information about the stocks of several companies, which stock displays the greatest amount of risk?

Stock A: Return = 22.22%, Standard Deviation = 9.99%

Stock B: Return = 15.05%, Standard Deviation = 7.35%

Stock C: Return = 38.83%, Standard Deviation = 4.54%

Stock D: Return = 5.69%, Standard Deviation = 5.32%

Stock A What is the relationship between risk and return? The higher risk an investor takes, the higher return the investor expects to receive.Maya is considering purchasing stock in a certain company. Her financial advisor suggests that she purchase stocks in multiple companies instead of just one.Which risk management technique is this financial advisor suggesting?Risk diversification

An energy company discovers that a new bill has been proposed to change the amount of fuel that can be exported outside the country. If passed, this could have a serious negative effect on the company's revenues. Some of the company's competitors are obtaining insurance policies to compensate for this risk, but since the energy company believes the likelihood of this bill passing is low, it chooses to do nothing—ultimately taking responsibility for this particular risk instead of trying to transfer the risk through an insurance policy.Which risk management technique is this choice an example of?Risk retention Which type of ratio should be used to examine the cost efficiency of a firm's production?Profitability What is the process of analyzing financial data with ratios to compare a firm's performance to competitors?Benchmarking Which action will increase the return on equity of a firm? Increasing the asset usage efficiency of the firm Which principle of ratio analysis means that ratios are open for analyst interpretation, are not governed by rules, and allow creativity to work according to a particular company or asset?Flexibility Why might an investor be concerned by how Company A is achieving its higher-than-industry return on equity?The company's significantly higher use of debt could present a financial risk.As an active investor, Maria is analyzing her portfolio to decide if there are any stocks she should remove from her pool of financial securities. A company she has invested in, Quiet Flag Industries, just released its annual report.Which kind of method should Maria use to see if the company has improved?Trend analysis Which type of ratios are banks and lenders most concerned about?Liquidity Which ratio helps an analyst evaluate whether a company can cover its short-term obligations?Current ratio Given the table above, what does the DuPont framework indicate about return on assets?All returns are based on the firm's profitability and efficiency.

An investment analyst is concerned about a construction company's ability to sell its inventory to meet current obligations, because much of the inventory (commercial buildings) it builds and sells takes longer than a year to construct.Which ratio should this analyst use to consider the effect of the firm's inventory on the firm's ability to meet current obligations?Quick ratio An employee was recently hired as a financial analyst and asked to create a cash budget for the employee's division for the next year.Which component should the employee exclude from the budget?Purchase of equipment that will be bought in three years What are the benefits of using the traditional envelope method to track cash flows?It is simple and helps ensure that users do not spend more than the cash that they have available.A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and weaknesses in cash flows and its budgeting process.Which major use of cash budgeting is this an example of?Performance evaluation Which process is Li engaging in if he recently made a personal budget and is now keeping a record of his cash flows?Tracking Which type of expense is a magazine subscription? Variable expense Which tool is forward-looking and thus helps decision makers understand how actions taken today can affect their firm's future performance?Financial forecasting A company is developing a financial forecast for the next year. The company plans to implement a new factory that will increase production and resulting sales by 20%.Since the company's assets are increasing significantly, what else must increase?Financing Jack works for a company that manufactures televisions and must obtain financing to increase the company's inventory levels. Jack's manager knows that current investment markets are tight, and it may be difficult for the company to obtain additional financing for the next year. The manager asks Jack to propose a way for the firm to reduce its discretionary financing needed (DFN).What should Jack suggest to reduce next year's DFN?Lower the amount of dividends that are paid out to shareholders next year What is the term for the rate that allows a firm to maintain its present financial ratios without issuing new equity or increasing debt?Sustainable growth rate