WGU’s Introduction to Business Finance (D775).(BJO1)

35. Why must a firm calculate discretionary financing need (DFN) when determining whether to invest in a particular investment?

• A. To evaluate the company’s ability to pay off short-term financing
• B. To estimate the profitability of the project before making financing decisions
• C. To assess the potential return on investment for shareholders
• D. To find the amount needed in new funds to finance the project

36. A manufacturing company is considering investing in new equipment to increase production efficiency. The project is expected to generate future cash flows, and the company’s cost of capital is 8%. Management wants to calculate the project’s Net Present Value (NPV) to decide whether to proceed. How is the 8% cost of capital used in this capital budgeting decision?

• A. As the discount rate for future cash flows to evaluate project profitability
• B. For estimating short-term expenses related to daily operations
• C. In determining employee wages across various departments
• D. To calculate inventory value for accounting and financial reporting

37. How do entrepreneurs raise capital for start-up firms with no sales or earnings history?

• A. By guaranteeing dividend payments to common stockholders
• B. By proposing high-interest loans on short-term debt due to the risk
• C. By offering preferential claims against the firm’s assets to bondholders
• D. By offering early investors the prospect of the highest returns

38. What is the main purpose of capital budgeting in a firm?

• A. To reduce current-year tax liability
• B. To reduce dependence on capital markets
• C. To maximize shareholder value
• D. To conserve capital assets

39. Which activity is an example of a capital investment project that uses the payback method?

• A. Paying office rent
• B. Purchasing new machinery
• C. Ordering office supplies
• D. Paying employee wages

40. A retail company specializing in eco-friendly clothing is experiencing rapid sales growth. Which condition would increase the company’s discretionary financing need (DFN)?

• A. Increase in accounts payable due to larger orders from suppliers
• B. Insufficient cash to acquire additional inventory to support sales growth
• C. Reduced inventory due to more efficient management
• D. Decrease in accounts receivable due to customers paying accounts early
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