WGU C214 FINANCIAL MANAGEMENT – COMPREHENSIVE OA PRACTICE TEST QUESTIONS WITH VERIFIED ANSWERS

WGU C214 FINANCIAL MANAGEMENT – COMPREHENSIVE OA PRACTICE TEST QUESTIONS WITH VERIFIED ANSWERS 1. What is the primary goal of financial management? A. Maximizing earnings per share regardless of risk B. Maximizing the market value of the firm's existing equity C. Minimizing tax liabilities at all costs D. Achieving the highest possible revenue growth Correct Answer: B Rationale: The primary goal of financial management is to maximize shareholder wealth, which is reflected in the market value of the firm's stock. Maximizing EPS without considering risk can be detrimental, and tax minimization or revenue growth are secondary considerations. **2. A firm has total assets of $2,000,000, total liabilities of $1,200,000, and net income of $160,000. What is the return on equity (ROE)?** A. 8% B. 13.33% C. 20% D. 25% **Correct Answer: C** **Rationale:** Equity = Total Assets – Total Liabilities = $2,000,000 – $1,200,000 = $800,000. ROE = Net Income / Equity = $160,000 / $800,000 = 0.20 = 20%. 3. Which of the following is one of the two basic types of financial instruments? A. Money Markets B. Mutual Funds C. Stocks D. Options Correct Answer: C Rationale: The two basic types of financial instruments are stocks and bonds. Stocks represent equity ownership, while bonds represent debt. 4. If a product is made 100% domestically, what can affect its domestic market? A. International exchange rates B. International competition C. Product tariffs D. International political regulations Correct Answer: B Rationale: Even a purely domestic firm faces competition from foreign firms that import products into the U.S. This international competition can affect the firm's domestic market share and pricing. 5. What does the Sarbanes-Oxley Act require companies to do? A. Have a board of directors B. Register all foreign sales C. Make estimated tax payments D. Have internal control audits Correct Answer: D Rationale: The Sarbanes-Oxley Act (SOX) requires companies to have internal control audits to ensure accuracy in financial reporting and prevent corporate fraud. 6. Why is float important to understand? A. To know how to keep the company profitable B. To know why the company needs cash C. To determine when to buy fixed assets D. To time cash expenditures Correct Answer: D Rationale: Float represents the difference between cash balance on a company's books and the balance at the bank. Understanding float helps managers time cash expenditures effectively. 7. What is the cash cycle? A. The speed of collecting cash from customers B. The amount of cash kept in banks C. The comparison of debt to cash D. The amount of time to regenerate cash Correct Answer: D Rationale: The cash cycle measures the amount of time it takes for a company to convert its investments in inventory and other resources back into cash. 8. If a company makes its product in a foreign country where labor costs are much lower, what happens? A. Profits and domestic employment goes up B. Costs go up and domestic employment goes down C. Costs stay the same and domestic employment increases D. Profits go up and domestic employment decreases Correct Answer: D Rationale: Outsourcing production to a country with lower labor costs typically increases profits due to reduced production costs, but domestic employment decreases as jobs are moved overseas. 9. If the value of a dollar increases, the price of imports: A. Increases B. Decreases C. Stays the same D. Fluctuates Correct Answer: B Rationale: When the dollar strengthens (increases in value), imports become cheaper because fewer dollars are needed to purchase foreign goods. 10. What is one way a firm maximizes shareholder value? A. By switching inventory methods B. By reducing the firm's labor force C. By outsourcing the production of the firm's core product D. By avoiding investments that cost more money than they bring in Correct Answer: D Rationale: Firms maximize shareholder value by only investing in projects where the expected return exceeds the cost. Avoiding negative NPV investments protects shareholder wealth. 11. FINRA (Financial Industry Regulatory Authority) does which of the following? A. Prevents foreign bribery by corporations B. Regulates bond prices C. Establishes Credit Unions D. Prosecutes naughty stock brokers Correct Answer: D Rationale: FINRA is a self-regulatory organization that oversees broker-dealers and enforces rules governing the conduct of stock brokers and securities firms. 12. What should a company do to manage its working capital effectively? A. Collect quickly and pay slowly B. Keep a large cash balance C. Maximize the use of long-term investment D. Depreciate assets more slowly Correct Answer: A Rationale: Effective working capital management involves accelerating cash collections from customers while delaying payments to suppliers as much as possible without damaging relationships. 13. 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 on financial reporting standards developed and financial statements audited overseas Correct Answer: D Rationale: Foreign investors and fund managers rely on financial reporting standards and audited financial statements developed overseas when making investment decisions in U.S. markets. 14. What would be a source of information to determine Replacement Cost?