WGU C214 Objective Assessment Financial Management Exam Latest Questions and Answers (2024/2025) (Verified Answers)
If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use?a. Slow sales growthb. Lower dividend payoutc. Increase the net margind. All of the above. d
Dodd-Frank regulates which segment of the U.S. Economy?a. Fannie Mae and Freddie Mac (Housing financing)b. Banking Industryc. Multi-level Marketing Industryd. Automobile Industry b
Which is not true of both stocks and bondsa. Market value derived from expected cash flowsb. Market value varies over timec. Have voting rightsd. Trade in both primary and secondary markets c
The value of a corporation is best measured bya. Equity on the Balance Sheetb. Assets minus Liabilities on the Balance Sheetc. Market capitalizationd. Its book value c
Which is not a component of the DuPont formula?a. Net Income to Salesb. Debt to Equity Ratioc. Sales to Asset Ratiod. Assets to Equity Ratio b
What metric converts FV to PV?a. The discount rateb. Timec. The PE ratiod. None of the above a
The interest rate on a corporate bond does not reflecta. Riskb. Inflationc. Face Valued. U.S. Treasury rates c
PV ordinarily is less than FV. What would cause the opposite?a. Compoundingb. Negative interest ratesc. The exchange rated. The Federal Reserve b
Which would likely have the lowest price?a. 3-month commercial paperb. Zero coupon bondc. 5-year Treasury noted. AAA corporate note b
Junk bonds are those whose rating is belowa. AAAb. AAc. Ad. BBB d
Diversification protects againsta. Systematic riskb. Market riskc. Idiosyncratic riskd. Inflation risk c
Which is the best diversification for stock investment?a. Auto company and grocery chainb. Walmart and Costcoc. Home buider and auto companyd. Boeing and Lockheed a
If you are assessing a firm’s ability to meet short term obligations, you would use which ratio?a. Debt ratiob. Quick ratioc. Gross margind. Financial leverage b
To assess firm efficiency, which ratio would you use?a. Asset turnoverb. Operating marginc. Debt ratiod. None of the above a
Which would have the highest value?a. Gross marginb. Operating marginc. Net margind. All are equal a
Which is the most important profit ratio?a. Gross Marginb. Net Marginc. Return on Equityd. Return on Assets c
If the debt ratio increases, what effect does that have on ROE?a. ROE increasesb. ROE decreasesc. ROE is unchangedd. Cannot be determined a
What is one way a firm maximizes shareholder value?A. By switching inventory methodsB. By reducing the firm’s labor forceC. By outsourcing the production of the firm’s core productD. By avoiding investments that cost more money than they bring in d
What is one of the two basic types of financial instruments?A. Money MarketsB. Mutual FundsC. StocksD. Options c
Why is it a challenge for a fund manager to review financial statements from other countries?A. Because the U.S. Financial Accounting Standards Board is in the beginning stages of working with the International Accounting Standards Board on converging reporting standards.B. Because the U.S. Generally Accepted Accounting Principles and the International Financial Reporting Standards vary.C. Because the U.S. Financial Accounting Standards and the International Accounting Standards Board abandon b
What is true about the content and structure of an income statement?A. It reports the expenses and liabilities at a point in time.B. It reports the revenues and expenses for a period of time. C. It reports the assets and expenses for a period of time. D. It reports the assets, liabilities, and equity at a point in time. b
What is true when income for tax purposes is higher than accounting incomeA. Accounting income tax expenses is the same as actual income tax payable. B. Actual income taxes payable will be lower than accounting income tax expense. C. Actual income taxes payable will be the same as accounting income tax expense. D. Actual income taxes payable will be higher than accounting income tax expense. d
What does the statement of cash flows report?A. A firm’s cash balance at a point in timeB. A firm’s cash net income for a point in timeC. A firm’s cash balance and changes for a period of timeD. A firm’s cash net income for a period of time c
What does net income measure that the cash flow from operating activities does not?A. Credit sales to customersB. Payments made to suppliers of goods and servicesC. Depreciation expensesD. Payments to employees or other expenses b
Which measure of cash flow is commonly used to evaluate the change in revenue and costs?A. Cash flow from operating activitiesB. Free cash flow to the firmC. Cash flow from financing activitiesD. Free cash flow to equity a
An analyst is comparing the ratios of two firms and needs to address accounting differences. What would be considered an accounting difference between the two firms?A. The firms have different auditorsB. The firms use different inventory methodsC. The firms have different fiscal yearsD. The firms are in different industries b
For the year 2013, a firm has a return on equity (ROE) that is greater than return on assets (ROA). Which conclusion would an analyst draw from these numbers?A. The firm is ineffectively using debt. B. The firm is ineffectively managing their inventoryC. The firm is effectively managing their inventoryD. The firm is effectively using debt d
What is an example of an estimate used in recording transactions?A. Deciding whether to expense or depreciate a fixed assetB. Deciding the cost of fixed asset when calculating depreciation expenseC. Deciding the salvage value of a fixed asset when calculating depreciation expenseD. Deciding whether to sell a fixed asset c
What is the coupon rate (yield) of a bond?A. The interest accrued on the bond through expirationB. The interest rate of the bond that can be changed at any time during the life of the bondC. The sum of money that the corporation promises to pay upon expiration of the bondD. The interest rate of the bond that is contractually set upon issuance d
If the coupon rate on a particular bond is higher than the market rate of return, at what will the bond sell?A. At a premiumB. A the risk-free rateC. At parD. At a discount a
Which securities are issued by the U.S. Federal government and are taxable at the federal level?A. EurobondsB. Municipal bondsC. Corporate bondsD. Treasury bonds d
What is the current price of the bond, if the required rate of return on a bond is the same as the coupon rate?A. Greater than the par value of the bondB. Equal to the par value of the bondC. The current prevailing market price of the bondD. Less than the par value of the bond b
If the current coupon rate on a bond is 6% and the bond is selling at a 5% discount, what is the yield to maturity on the bond?A. Equal to 5%B. Equal to 6% C. Less than 6% D. Greater than 6% b
How is a short-term receivable, with the maturity of less than one year, carried on the balance sheet?A. As a current assetB. As a current liability C. As owner’s equityD. As a long-term liability a
When is a company that has strong operating revenues and competent management a good investment?A. When the intrinsic value of the price per share is higher than the current stock priceB. When the intrinsic value of the price per share is lower than the current stock priceC. When the current stock price is currently equal to the intrinsic valueD. When the current stock price is overvalued relative to the intrinsic value a
Thinking about levels of market efficiency quadrants. Which investment option should be selected assuming a prudent investor wants to maximize their expected return E(R)? Quad 1; Quad 2; Quad 3; Quad 4A. AB. BC. CD. DE. E a
Which security type includes the right to vote for a board of directors?A. Preferred stockB. Money market fundsC. BondsD. Common stock d
Economists forecast the probability of recession at 22%. During periods of recession, returns for a company have been -2%. Returns for the company have been 18% during an expansionary period. What is the forecast probability of an expansionary period?A. 80% B. 78% C. 76%D. 82% b
“What makes the “”efficient frontier”” efficient?A. It always produces the minimum riskB. It disregards risk to produce the maximum returnC. It provides the highest level of risk for a given returnD. It maximizes the ratio of expected return to risk” d
What are 3 components required in calculating weighted average cost of capital (WACC)?A. The market cap of the companyB. The desired growth rateC. The amount and required return for common equity, preferred equity and debtD. The marginal tax rateE. The value of preferred stock and debtF. The firm’s market valueG. The combined total expected growth rate d, e, f
What advantage does the Gordon growth model have compared to the capital asset pricing model (CAPM)?A. It requires assumptions about growth that benefit fast growing companiesB. It provides an easier to understand and relatively accurate forecast when growth rates are stableC. It is highly accurate in predicting future growthD. It requires the use of accurate known factors, such as future growth rates b
How does the weighted average cost of capital affect a company’s growth opportunities?A. The higher the cost of capital, the greater the growth opportunitiesB. Only the cost of debit will affect growth opportunitiesC. The lower the cost of capital, the lower the growth opportunitiesD. The lower the cost of capital, the greater the growth opportunities d
Under which three conditions would a firm decide to reduce the growth rate?A. When investors are dissatisfied with the dividend payout ratioB. When additional investor capital is not availableC. When capacity has been reachedD. When customers are dissatisfied with the company’s productsE. When the company’s borrowing limits have reached the maximum allowed by the lender b, c, d
Which three changes would affect an estimate of differential cash flows?A. An increase in the marginal tax rate of a companyB. An increase in the estimated value of the new machine at the end of the projectC. A revision in the depreciation schedule D. A decrease in projected annual revenueE. An increase in the overhead allocation b, c, e
Why is it important to prepare an accurate fixed asset financing forecast?A. The method used to finance fixed assets will drive product demand. B. Firms producing above capacity may not require additional fixed asset investment to increase sales.C. Accurate forecasting of fixed assets requirements ensures the complete discretion of management in budgeting. D. Firms producing below capacity may not require additional fixed asset investment to increase sales. b
How is the value of a project determined in the capital budgeting process?A. The net present value of the incremental before-tax cash flowsB. The future value of the incremental tax cash flowsC. The net present value of the incremental tax cash flowsD. The future value of the incremental before-tax cash flows c
Company A has a high degree of business risk. What will be the effect on the company’s EBIT if the company suffers a slight decrease in sales?A. Large increase in EBITB. Large decrease in EBITC. Small decrease in EBITD. Small increase in EBIT b
What effect does the method of financing investments have on the value of the firm?A. The method of financing investments alters the weighted average of the cost of capital.B. Financing through tax-advantage debt has no effect on the value of the firmC. Issuing more costly (ie risker) bonds for financing investments has no effect on the value of the firmD. Any mehod of financing investments has the same effect on the value of the firm a
Why would a company prefer equity financing over debt financing?A. Too much debt can lead to a greater risk of possible insolvencyB. Equity financing has tax benefitsC. Issuing new debt diminishes the existing control of shareholdersD. Using equity to finance a capital investment project is less costly d
Which hybrid security has some elements that resemble equity and others that resemble debt?A. Derivative stockB. Preferred stockC. Common stockD. Treasury stock b
How do increases in market interest rates affect a firm’s cost of capital?A. The cost of debt decreasesB. The cost of equity decreasesC. The cost of debt increasesD. The cost of equity increases c
Which two ratios are used to evaluate a company’s working capital management?A. Receivable turnoverB. Earnings per shareC. Return on equity D. Cash ratioE Profit Margin a, d
Why should a company carry cashA. The opportunity cost of holding cash is lowB. The shortage cost of holding cash is highC. Cash is needed for day to day operationsD. Cash is needed to meet the customers demands c
What is commonly used method that limits the time it takes between payment and the receipt of cash?A. Automated data processingB. Payment by mail processingC. Disbursement float processing D. Electronic check processing d
Some companies offer discounts to customers in order to give incentive for paying earlier than the due date. What two terms incentivize customers to accept trade discounts?A. Cash cycleB. Length of the credit periodC. Sales commissionD. Amount of discountE. Days sales in receivables b, d
Which three costs are associated with holding inventory?A. Variable costsB. Opportunity costsC. Storage costsD. Product costsE. Fixed costs b, c, d
Which ratio is used in the comparable multiples method?A. Quick ratioB. Current ratioC. Price earnings ratioD. Debt to equity ratio c
Investors will often sell a stock that has gains rather than a stock that is suffering losses in their portfolio, despite subsidized tax relief when selling at a loss. What the logic-defying behavioral implications of such a decision.A. Selling a stock at a gain results in dollar cost average benefitsB. Maintaining winning positions in the portfolio enhances future portfolio growth rateC. Investors hate taking a loss, especially when they can realize a gainD. Selling an equity position at an b
How are the Security and Exchange Commissions’ Regulation S and Rule 144A similar?A. Both use incentives and penalties to ensure fair dealings between large financial institutions and small investors. B. Both allow firms to raise capital without registering with the SEC if certain conditions are metC. Both are intended to increase transparency of financial marketsD. Both encourage specialized training by individuals designated to sell securities b
What is the primary intent of the Sarbanes-Oxley Act?A. To impose requirements on stockholders of public companiesB. To reduce the fees associated with financial transactionsC. To control the rise in the rate of executive compensationD. To ensure honest audit and accounting procedures d
Which element is a required disclosure in the prospectus, according to the Securities Act of 1933?A. Internal control reportsB. Tax returnsC. Audited financial statementsD. Budgets c
Which condition must be met for a firm that trades in equities to be in compliance with the Securities and Exchange (SEC) regulations?Securities and Exchange (SEC) regulations?A. Payments pursuant to the Sarbanes-Oxley ActB. Participation in the MSRB (Municipal Securities Rulemaking Board)C. Certification under the Dodd-Frank ActD. Membership in FINRA (Financial Industry Regulatory Authority) d
Which practice is limited by the Volcker rule of the Dodd-Frank Act?A. The role of inside directorsB. Issuance of limited prospectusesC. Bank investments in hedge fundsD. Conflicts of interests by bank board members c
What is beta?A. An absolute measure of idiosyncratic riskB. A measure of market value relative to the market riskC. An absolute measure of systematic riskD. A measure of systematic risk, relative to the market risk c
What do investors, entrepreneurs and other market participants rely on the SEC to do?A. Determine safety and efficiency of investment by US and foreign investorsB. Regulate the Money SupplyC. Prohibit foreign briberyD. Require Private Firms to Register a
What is one way a firm maximizes shareholder value?A. By switching inventory methodsB. By reducing the firm’s labor forceC. By outsourcing the production of the firm’s core productD. By avoiding investments that cost more money than they bring in d
What is one of the two basic types of financial instruments?A. Money MarketsB. Mutual FundsC. StocksD. Options c
The stock price of a company increases and the market is deemed efficient. What assumption can be made?A. A new, patented, product was introduced to the market.B. New machinery was purchased with a useful life of 20 years. C. Management is optimizing its resources and operating efficiently. D. Management hired new employees and invested in a training program. a
Which statement is true about how the global market affects the U.S.A. A bad options trade executed by a foreign subsidiary of a Wall Street bank will affect layoffs overseas. B. A Bad derivatives trade executed by a foreign subsidiary of a Wall Street bank will affect layoffs overseas.C. American investors and fund managers make decisions based on financial reporting standards developed and financial statements audited overseas. D. Foreign investors and fund managers make decisions based d
What are secondary markets?A. Markets where securities are traded subsequent to the initial offering. B. Markets were securities are issued for the first time. C. Markets were securities are issued through a competitive sale. D. Markets where securities are issued through a negotiated sale. a
A special interest group in the U.S. has been lobbying intensely for protectionism through increased tariffs and trade restrictions, with the argument that it will save jobs in the industry they represent. What is the most likely result if they are successful?A. Employees and shareholders of the domestic industry that produce the protective goods will be hurt and the nation will benefit.B. The overall economy will benefit from trade restrictions and tariffs.C. Removing the trade restriction d
What is true about the content of an income statement?A. It reports the assets, liabilities, and the equity at a point in time. B. It reports the assets and expenses for a period of time.C. It reports the expenses and liabilities at a point in time.D. It reports the revenues and expenses for a period of time. d
What is the basis used to compute a company’s income tax expense?A. Pretax accounting income.B. Taxable income.C. Net operating income.D. Taxes payable. d
A company’s trial balance shows $900 in long-term debt. On which financial statement should this be shown?A. The general ledgerB. The statement of cash flowsC. The income statementD. The balance sheet d
What do cash flows from financing activities generally relate to?A. A firm’s purchase and sale of long-term assetsB. A firm’s non-cash transactionsC. A firms’ debt and equity transactionsD. A firms sale of goods and services c
What is true about the cash flow from the operating activities section of the statement of cash flows?A. Increases in current liability accounts represents an inflow of cash and should be added to net incomeB. Decreases in current liability accounts represent an outflow of cash and should be added to net incomeC. Increases in current liability accounts represent an outflow of cash and should be subtracted from net incomeD. Decreases in current liability accounts represent an inflow of cas a
An analyst is comparing the ratios of two firms and needs to address accounting differences. What would be considered an accounting difference between two firms?A. The firms are in different industriesB. The firms have different auditorsC. The firms use different inventory methodsD. The firms have different fiscal years c
Firms A and B are in the same industry. For the year 2013, Firm A has a gross margin of .45 and Firm B has a gross margin of .36.Which conclusion would an analyst draw when comparing Firm A to Firm B?A. Firm A has a more efficient production processB. Firm A has higher depreciation expenseC. Firm A has lower depreciation expenseD. Firm A has less efficient production process a
What is an example of an estimate used in recording transactions?A. Deciding the salvage value of fixed asset when calculating depreciation expenseB. Deciding whether to expense or depreciate a fixed assetC. Deciding the cost of a fixed asset when calculating depreciation expenseD. Deciding whether to sell a fixed asset a
What is a subordinated debenture?A. A bond that is risk freeB. A bond that is backed by collateralC. A bond that has a higher claim to the assets of the firm in the event of liquidationD. A bond that has a lower claim to the assets of the firm in the event of liquidation d
If the coupon rate on a particular bond is higher than the market rate of return, at what will the bond sell?A. At a premiumB. A parC. At the risk-free rateD. At a discount a
Which securities are issued by the U.S. federal government and are taxable at the federal level?A. Municipal bondsB. Treasury bondsC. Corporate bondsD. Eurobonds b
If the current coupon rate on a bond is 6% and the bond is selling at a 5% discount, what is the yield to maturity on the bond?A. Less than 6%B. Greater than 6%C. Equal to 6%D. Equal to 5% c
What is the difference between a secured loan and an unsecured loan?A. Secured loans require some form of collateral. B. Unsecured loans typically have a lower interest rateC. Unsecured loans require some form of collateral.D. Secured loans typically have a higher interest rate a
What is the intrinsic value of a stock?A. The future estimated market valueB. The 100-day moving average of the stock priceC. Net present value of expected future cash flowsD. Past market value c
Which investment option should be selected assuming a prudent investor wants to maximize their return E(R)?A. Quad 1 AB. Quad 2 BC. Quad 2 CD. Quad 3 DE. Quad 4 E a
What is the relationship between annual percentage rate (APR) and annual percentage yield (APY)?A. The APR will be greater than the APY if compounding happens more frequently than annuallyB. The APR will equal the APY if compounding happens more frequently than annually C. The APR will be less than the APY if compounding happens more frequently than annually D. The APR will be less than the APY if compounding happens more frequently than annually a
What is the priority order of repayment (first to last) to a company’s investors and creditors?A. Creditors, common stockholders, preferred stockholdersB. Preferred stockholders, creditors, common stockholdersC. Creditors, preferred stockholders, common stockholdersD. Common stockholders, preferred stockholders, creditors c
“Where on the “”efficient frontier”” is a young investor with a high risk tolerance likely to fall? A. A1B. C1C. D2D. D3″ d
Supply and demand factors suggest the slope for an individual asset in the portfolio will equal the slope of the market portfolio itself. What is the significance of this equalization? A. The entire risk-return slope will decrease over timeB. Investors will be forced to frequently shift their portfoliosC. Investors will be incentivized to hold the market portfolioD. The slope of the individual assets in a portfolio will diverge to increase diversification. c
What are the components required in calculating weighted average cost of capital (WACC)? Choose 3A. The market cap of the companyB. The desired growth rateC. The value of the preferred stock and debtD. The firms market valueE The marginal tax rateF The combined total expected growth rateThe amount and required return for common equity, preferred equity and debt c,d, e
What advantage does the Gordon Growth Model have compared to the capital asset pricing model (CAPM)?A. It is highly accurate in predicting future growthB. It requires assumptions about growth that benefit fast-growing companiesC. It provides an easier to understand and relatively accurate forecast when growth rates are stableD. It requires the use of accurate known factors, such future as growth rates. c
How does the weighted average cost of capital affect a company’s growth opportunities?A. The lower the cost of capital, the greater the growth opportunitiesB. Only the cost of debt will affect growth opportunities C. The lower the cost of capital, the lower the growth opportunities D. The higher the cost of capital, the greater the growth opportunities a
Under which three conditions would a firm decide to reduce the growth rate? Choose 3A. When investors are dissatisfied with the dividend payout ratioB. When additional investor capital is not availableC. When the company’s borrowing limits have reached the maximum allowed by the lenderD. When capacity has been reachedE. When customers are dissatisfied with the company’s products b, d, e
What are discretionary accounts?A. Accounts that require management to deliberately increase or decreaseB. Accounts that increase automatically with salesC. Accounts that include current assetsD. Accounts that only appear on an income statement a
What is the purpose of the capital budget process?A. Estimating the budget of a new projectB. Estimating the cost to start a new projectC. Budgeting a firm’s monthly revenue and expensesD. Deciding which projects increase the firm’s value d
Firm A has a lower degree of business risk than Firm B. What will happen if there is a 1% increase in sales for both firms?A. It will result in a greater percentage in Firm A’s operating incomeB. It will result in a greater percentage in Firm Bs operating incomeC. It will result in a greater percentage in Firm Bs operating incomeD. It will result in a greater percentage in Firm As operating income c
Modigilani and Miller’s initial capital structure theory suggested that in the absence of taxes, bankruptcy costs and transaction costs, the firm’s capital structure would not affect the weighted average cost of capital (WACC). What has been proven by subsequent research and inclusion of factors omitted in the initial theory?A. A firm’s capital structure does affect the weighted average costs of capital, and thus a firm’s value.B. Modigliani and Miller’s initial work has proven accurate in d a
Which strategy issues new debt within a company and takes the proceeds from the debt issuance to buy back some of the outstanding shares?A. Leverage recapitalization B. Leverage buyoutsC. ReorganizationD. Nationalization a
Which type of bond gives an investor the right to trade each bond for a set number of shares of common stock whenever the investor chooses?A. Treasury bondB. Convertible bondC. Mortgage bondD. Foreign bond b
A credit agency recently downgraded a company’s debt. What is the impact on the cost of debt?A. The cost of capital will increaseB. The cost of capital will decreaseC. The cost of equity will decreaseD. The cost of capital will remain the same a
Which financial ratio measures a company’s ability to meet its short term obligations with its most liquid assets?A. Quick ratioB. Equity ratioC. Debt ratioD. Current ratio a
Why should a company carry cash?A. The opportunity cost of holding cash is low.B. Cash is needed to meet the customers’ demand.C. Cash is needed for day to day operationsD. The shortage cost of holding cash is high. c
Which term describes the amount of cash that a firm must hold as a safety net to counter future unforeseen expenses?A. Reserve balanceB. Budgetary balanceC. Beginning balanceD. Operating balance a
Some companies offer discounts to customers in order to give incentive for paying earlier than the due date. Which two terms incentivize customers to accept trade discounts? Choose 2A. Sales commissionB. Amount of discountC. Cash cycleD. Day’s sales in receivables E. Length of the credit period b, e
Which three costs are associated with holding inventory?A. Fixed costsB. Storage costsC. Variable costsD. Product costsE. Opportunity costs b, d, e
Which ratio is used in the comparable multiples method?A. Current ratioB. Debt to equity ratioC. Quick ratioD. Price earnings ratio d
Investors will often sell as stock that has gains rather than a stock that is suffering losses in their portfolio, despite subsidized tax relief when selling at a loss. What are the logic defying behavioral implications of such a decision?A. Selling a stock at a gain results in dollar cost averaging benefitsB. Maintaining winning positions in the portfolio enhances future portfolio growth rateC. Investors hate taking a loss, especially when they can realize a gain.D. Selling an equity po b
How are the Securities and Exchange Commissions Regulation S and Rule 144A similar?A. Both allow firms to raise capital without registering with the SEC if certain conditions are metB. Both encourage specialized training by individuals designated to sell securities. C. Both use incentives and penalties to ensure dealing between large financial institutions and small investorsD. Both are intended to increase transparency of financial markets a
Which element is a required disclosure in the prospectus, according to the Securities Act of 1933?A. Audited financial statementsB. Tax returnsC. BudgetsD. Internal control reports a
What must a firm have to be in compliance with Financial Industry Regulatory Authority (FINRA) rules?A. Significant cash reservesB. Diversity in board membershipC. Public disclosure of personnel filesD. Current and accurate books d
Which organization was created by Dodd-Frank to monitor how systematic risk could impact the banking industry?A. Public Oversight BoardB. Financial Stability Oversight CouncilC. Federal Insurance Office D. Financial Regulatory Agency b