WGU C214 Financial Management 2023/ 2024 Exam| Questions and Verified Answers| Grade A+
WGU C214 Financial Management 2023/
2024 Exam| Questions and Verified Answers|
Grade A+
Q: What do you do if the question says that the dividend was paid RECENTLY or the dividend
was JUST paid?
Answer:
First you must calculate the expected dividend.
Q: How do you know when to use the Gordon Growth model to answer a question?
Answer:
If you see the word GROW or GROWTH in the question, then it’s a GGM question.
Q: What is the CAPM model?
Answer:
Capital Asset Pricing Model. Considered superior to GGM because it incorporates RISK.
Uses concept of “Efficient Frontier”.
Q: What is the concept of Efficient Frontier?
Answer:
Efficient Frontier maximizes expected return for a given level of risk.
Q: In a probability question, what should the chance of recession and the chance of expansion
equal in percentage?
Answer:
They should total 100%
Q: What are some implications of Efficient Market Hypothesis (EMH)
Answer:
One important implication of EMH is that no one can time the market.
In any market to survive in an efficient financial market, they have to consistently make
profitable decisions.
Q: Under the efficient market hypothesis (EMH) how is the intrinsic value of stock determined?
Answer:
Under EMH, the intrinsic value of a stock is the Present Value of the stock’s after tax net cash
flows.
Q: What is Capital budgeting?
Answer:
The process that companies employ to make decisions on long term investments (projects that
generate cash flows over a multi-year time horizon).
A company wants to buy a factory? That’s a capital budgeting decisions.
A company wants to buy $10million dollars in equipment? That’s a capital budgeting decision.
Q: What are the 3 sets of information you need in Capital budgeting decision making?
Answer:
- Initial Outlay- cost of the asset, shipping costs and investment in working capital.
- Differential Annual Cash Flows consists of incremental cash flow generated every year.
- Terminal Cash Flow consists of after tax proceeds from the sale of asset and release of
working capital. (When the project comes to an end, the last year of the project)
Q: Companies use two methods for capital budgeting. What are they?
Answer:
Net Present Value (NPV) and Internal Rate of Return (IRR)
Q: What is Net Present Value (NPV)?
Answer:
Is defined as the present value of after tax net cash flows and is the most commonly used method
in Capital budgeting.
Q: What is the Internal Rate of Return (IRR) Method?
Answer:
It is defined as the discount rate that results in a zero net present value.
Q: How do you calculate NPV?
Answer:
Use your financial calculator!
Q: What does it mean if you see a negative number?
Answer:
It means cash is going out.
Q: What is the comprehensive formula for Net Income?
Answer:
Increase in revenue – Increase in fixed costs and variable costs – depreciation * (1- tax rate)
Q: On the financial calculator, a dividend is always entered as…
Answer:
A payment: the “PMT” key.
Q: How do you enter I/Y percentages in the financial calculator?
Answer:
You enter them as a whole number. So 15% would be 15
Q: Whenever somebody gets something every year, it’s called what?
Answer:
An annuity
Q: How is an annuity entered into the financial calculator
Answer:
An annuity is always entered as a payment (PMT) in the financial calculator.
Q: If a question has two time periods in the question, what clue is that giving you as to what
kind of question it is.
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