BJ01 Introduction to Business Finance Version 1
Practice exam for Western Governors University WGU Exams under Western Governors University Exams (College Exams). 5 sample questions.
Sample Questions
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Question 1
What is a focus area of business finance?
Correct Answer: B
Rationale: Business finance centers on decisions that shape a company's future, such as allocating resources to long-term projects. Capital budgeting stands out as a core focus, guiding investments in assets like equipment or facilities. Unlike personal budgeting or tax collection, it directly drives corporate growth and value creation.
Rationale: Business finance centers on decisions that shape a company's future, such as allocating resources to long-term projects. Capital budgeting stands out as a core focus, guiding investments in assets like equipment or facilities. Unlike personal budgeting or tax collection, it directly drives corporate growth and value creation.
Question 2
Why is understanding the cost of capital important in business finance?
Correct Answer: B
Rationale: The cost of capital acts as a benchmark for evaluating investment opportunities, revealing the true expense of funding through debt or equity. It helps managers choose financing mixes that minimize costs while maximizing returns. Without this insight, firms risk overpaying for capital or rejecting profitable projects.
Rationale: The cost of capital acts as a benchmark for evaluating investment opportunities, revealing the true expense of funding through debt or equity. It helps managers choose financing mixes that minimize costs while maximizing returns. Without this insight, firms risk overpaying for capital or rejecting profitable projects.
Question 3
What does risk management in business finance involve?
Correct Answer: B
Rationale: Risk management in business finance is like installing safety nets across the company's financial landscape, identifying threats from market swings or credit defaults. It involves strategies to mitigate losses through insurance, diversification, or hedging. This proactive approach safeguards profitability and ensures long-term stability.
Rationale: Risk management in business finance is like installing safety nets across the company's financial landscape, identifying threats from market swings or credit defaults. It involves strategies to mitigate losses through insurance, diversification, or hedging. This proactive approach safeguards profitability and ensures long-term stability.
Question 4
What are bonds?
Correct Answer: B
Rationale: Bonds function as IOUs where investors lend money to corporations or governments in exchange for periodic interest and principal repayment. They represent debt, not equity, offering fixed income without ownership rights. This structure provides issuers with capital while giving bondholders predictable returns.
Rationale: Bonds function as IOUs where investors lend money to corporations or governments in exchange for periodic interest and principal repayment. They represent debt, not equity, offering fixed income without ownership rights. This structure provides issuers with capital while giving bondholders predictable returns.
Question 5
What makes Treasury bonds attractive to firms with extra cash?
Correct Answer: B
Rationale: Treasury bonds shine as a safe harbor for surplus corporate cash, backed by the full faith of the U.S. government, virtually eliminating default risk. Their low volatility preserves capital, making them ideal for liquidity management. Firms prioritize this security over higher yields from riskier assets.
Rationale: Treasury bonds shine as a safe harbor for surplus corporate cash, backed by the full faith of the U.S. government, virtually eliminating default risk. Their low volatility preserves capital, making them ideal for liquidity management. Firms prioritize this security over higher yields from riskier assets.