WGU C214 Practice Test

C214 Practice Test 5.0 (1 review) Students also studied Terms in this set (125) Western Governors UniversityC 214 Save WGU C214 Financial Mgmt Pass the ...Teacher 160 terms MBAStar317Preview WGU C214 Concepts Only Multi Cho...222 terms ctcaw259Preview WGU C214 Concepts Only Multi Cho...Teacher 222 terms Lydia_Smith75 Preview Pre tes 94 terms myc

1. A firm reported the following:

Net Income 100,000 Depreciation 25,000 Change in NWC 15,000 What is the CFO (cash flow from operations)?

• 100,000
• 110,000
• 120,000
• (130,000)

CFO = Net Income + Depreciation - Increase NWC

=100,000 + 25,000 - 15,000

• What is the Cash Flow from Investing?

Beginning Net PP&E 50,000 Ending Net PP&E 200,000 Depreciation Expense 40,000

• (190,000)
• 150,000
• 200,000
• (150,000)

Cash Flow Investing (CFI) Change in Investment = (Change in Net PPE + Depreciation)

=(200,000 - 50,000) + 40,000

Change Invest = 190,000 CFI = (-1) * Change in Invest = (190,000)

• What is the Cash Flow from Financing?

Accounts Payable 50,000 Stock Issuance 75,000 Increase in Bonds Payable 125,000 Dividends Paid 80,000

• 150,000
• 120,000
• 100,000
• 145,000

Cash Flow Financing CFF = Increase in Stock + Increase in Debt - Dividends Paid

=75,000+125,000-80,000

=120,000

• A couple wants to save for a down payment on a

house. They think they need to accumlate 100,000 in five years. If the interest rate is 5% and they start at the end of the year when they both get bonuses from their employers, what do they have to put aside annually?

• 22,096
• 17,752
• 18,097
• 18,462

100,000 FV

• N
• I/Y

Cpt PMT = 18,097

• Hedgeco had sales of 70,000,000, expenses of

50,000,000 and has a 40% tax rate. It has equity of 40,000,000. The board approved dividends of 4,000,000.What is the company's Sustainable Growth Rate?

• 20%
• 15%
• 25%
• 14%

SGR = ROE * ( 1 - Payout Ratio ) ROE = Net Income / Equity Payout Ratio = Dividends Paid / Net Income Net Income = (70 - 50)*(1-0.4) = 12 ROE = 12/40 = 0.30 Payout Ratio = 4/12 = .33

SGR = .30 * (1 - 0.33) = .20

• A company wishes to issue 10 year semi-annual pay

bonds with a face value of $1,000 and a coupon rate of 5%. The market has shifted before the issuance and the bonds will sell at 95% of face value. What is the YTM of the bonds when they are sold?

• 6.71%
• 5.50%
• 5.66%
• 6.33%

20 N

1000 FV

25 PMT

(950) PV

Cpt I/Y = 2.83 * 2 = 5.66%

• What does a stock have to sell for one year in the

future, if it currently sells for $75, has a planned dividend of $2 a share and an expected return of 12%?

• 75
• 79
• 82
• 85
• N

(75) PV

• PMT

12 I/Y

Cpt FV = 82

• A company just paid a dividend of 2.00 to its

shareholder. It estimates that future growth will be at 5%.What is the value of the stock if you are looking for an 10% return on your investment?

• 41.75
• 42
• 41
• 39

Price = Projected Next Div / (Req Return - Growth Rate) Next Dividend = Last Dividend x (1+growth rate)

= (2 * 1.05) / (0.10 - 0.05)

= 42

• To create a fund for annual college scholarships of

$100,000 that will last forever, how much must be invested today if the interest rate is 5%?

• 1,000,000
• 5,000,000
• 500,000
• 2,000,000

Perpetuity: Present Value = Payments / Interest Rate

PV = 100,000 / .05

PV = 2,000,000

• The market yield is 15% and Treasury bonds are

yielding 3%. If a stock has a beta of 1.5. What is that stock's expected return?

• .17
• .18
• .21
• .15

E(r) = Risk Free Rate + Beta * ( Market Yield - Risk Free Rate) E(r) = Risk Free Rate + Beta * ( Market Risk Premium)

=.03 + 1.5 * (.15 - .03)

=.03 + .18

=.21

• Common stock is valued at 500,000 and Long-term

debt is valued at 300,000. What is the WACC if common stock costs .15 and long-term debt costs .07? The tax rate is 40%.

• .1275
• .125
• .1225
• .1095

WACC = (Stock/Total Funds) x Rate + (Debt/Total Funds) x Rate x (1-tax rate)

=(500/800).15 + (300/800).07*(1-0.4)

=0.625.15 + (0.375.07*0.6)

= 0.0938 + 0.0158

= 0.1095

• What is the Initial Cash Flow (ICF) given the following

information:

· Equipment Price 400,000 · Installation 10,000 · Shipping 5,000 · Working Capital 100,000

• (415,000)
• 615,000
• (515,000)
• 510,000

ICF = Asset Cost + Ship & Install + Increase NWC

=400,000+10,000+5,000+100,000

=515,000 outflow

= (515,000)

• A couple wants to have an annuity of $25,000 payable

at the beginning of each year for 10 years. If they have 20 years to save for that annuity, how much must be saved from their annual year-end bonus? Assume a 5% interest rate.

• 5,838
• 6,130
• 6,437
• 6,552

Step 1: Begin Mode: 25,000 PMT 10 N 5 I/Y CPT PV = 202,696 Step 2: End Mode: 202,696 FV 20 N 5 I/Y CPT PMT = 6,130

• At sales of $100 million, a firm estimates AR at 15% of

sales & inventory at 20% of sales. If it has $5 million of equity and $15 million of debt, what is its DFN?

• 40 mill
• 50 mill
• 15 mill
• Insufficient data to determine

DFN = Incr Assets - Incr Liabilities - Incr Equity

Assets: 100 * (.15+.20) = 35

Sources of funds: 5 + 15 = 20

DFN = Assets - Sources = 35 - 20 = 15

• A project is closing. Equipment is sold for 80,000 even

though the book value was 100,000. The tax rate is 30%.The project started with 50,000 in working capital. What is the Terminal Cash Flow?

• 100,000
• 50,000
• 136,000
• 85,000

TCF = Decrease in NWC + Salvage Value Salvage Value = Sales Price - (Sales Price - Book Value) x Tax Rate

=80,000 - (80,000 - 100,000) * 0.3 + 50,000

=80000+6000+50000 = 136,000

• If a stock is purchased for $15, receives a $1 dividend,

and is sold a year later for $20, what is the return to the investor?

• 33%
• 40%
• 43%
• 5%

Return = Dollar Profit / Initial Investment Dollar Profit = Dividend + Capital Gain =1 + (20-15) = 6 = dollar profit; Return = 6/15 = 40%

or: (15) PV 1 PMT 1 N 20 FV CPT I/Y 0.40

• A $1 million project was delayed for 3 years. If the

inflation rate is 5%, how much should be budgeted to fund the project after the delay?

• $1.2 million
• $1.3 million
• $1.0 million
• $ 0.8 million

Futre Value = Present Value * [ (1 + Inflation Rate)^(number of years) ] 1,000,000 PV 3 N 5 I/Y CPT FV = 1.157 million

• If a firm has a 10% net margin on $100 million sales and

a 20% payout ratio, what is the addition to retained earnings?

• $10 million
• $20 million
• $8 million
• Cannot be determined

Change in Retained Earnings = Net Income - Dividends Paid Net Income = 10% * 100 = 10 million Dividends = Net Income Payout Ratio = 10 20% = 2 million Change in RE = 10 - 2 = 8 million

• If a firm has $50 million of sales, 30 million of

operating expenses, 10 million of depreciation, and a 20% tax rate, what is its net income?

• 20 million
• 8 million
• 18 million
• 10 million

Net Income = (Revenue - Expenses - Depreciation) * (1 - Tax Rate) =(50 - 30 - 10 ) * (1 - .2 ) = 8 million

• If a 5-year zero coupon bond sells for 900, what is its

yield to maturity?

• 0%
• 10%
• 2.13%
• 2.22%

Yield = (Face Value / Price ) ^(1/N) - 1

=(1000/900)/ (1/5) - 1 = 2.13%

or

0 PMT 1000 FV (900) PV 5 N CPT I/Y = 2.13