WGU C214 – Financial Management OA Exam |
Actual study Questions and Answers + Expert
Rationales | 2026 Updates | 100% correct
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)?
A. 100,000
B. 110,000
C. 120,000
D. (130,000)
Correct Answer: B
Expert Rationale: CFO = Net Income + Depreciation – Increase in NWC = 100,000 + 25,000 –
15,000 = 110,000. Depreciation is a non-cash expense that is added back to net income, while
increases in working capital represent uses of cash.
2. What is the Cash Flow from Investing? Beginning Net PP&E 50,000, Ending Net PP&E
200,000, Depreciation Expense 40,000
A. (190,000)
B. 150,000
C. 200,000
D. (150,000)
Correct Answer: A
Expert Rationale: CFI = –(Change in Net PPE + Depreciation) = –[(200,000 – 50,000) + 40,000] =
–190,000 . The negative sign indicates cash outflow for investment in fixed assets.
3. 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
A. 150,000
B. 120,000
C. 100,000
D. 145,000
,Correct Answer: B
Expert Rationale: CFF = Increase in Stock + Increase in Debt – Dividends Paid = 75,000 + 125,000
– 80,000 = 120,000 . Stock issuance and bond increases are sources of cash; dividends are a use
of cash.
4. A couple wants to save for a down payment on a house. They think they need to
accumulate 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?
A. 22,096
B. 17,752
C. 18,097
D. 18,462
Correct Answer: C
Expert Rationale: Using the BA II Plus calculator: 100,000 FV, 5 N, 5 I/Y, CPT PMT = 18,097 . This
is a future value of an ordinary annuity problem.
5. 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?
A. 20%
B. 15%
C. 25%
D. 14%
Correct Answer: A
Expert Rationale: SGR = ROE × (1 – Payout Ratio). Net Income = (70 – 50) × (1 – 0.4) = 12. ROE =
12/40 = 0.30. Payout Ratio = 4/12 = 0.33. SGR = 0.30 × (1 – 0.33) = 0.20 = 20% . The SGR
represents the maximum growth rate a firm can achieve without external financing.
6. 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?
,A. 6.71%
B. 5.50%
C. 5.66%
D. 6.33%
Correct Answer: C
Expert Rationale: Calculator inputs: 20 N, 1000 FV, 25 PMT, -950 PV. CPT I/Y = 2.83 × 2 = 5.66% .
YTM is the return an investor earns if the bond is held to maturity.
7. 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%?
A. 75
B. 79
C. 82
D. 85
Correct Answer: C
Expert Rationale: Calculator inputs: 1 N, -75 PV, 2 PMT, 12 I/Y, CPT FV = 82 . The future stock
price equals the present value plus expected return minus dividends.
8. 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 a 10% return on your
investment?
A. 41.75
B. 42
C. 41
D. 39
Correct Answer: B
Expert Rationale: Price = (Dividend × (1 + g)) / (r – g) = (2 × 1.05) / (0.10 – 0.05) = 42 . This is the
Gordon Growth Model (Constant Growth Model).
9. 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%?
, A. 1,000,000
B. 5,000,000
C. 500,000
D. 2,000,000
Correct Answer: D
Expert Rationale: Perpetuity PV = Payment / Interest Rate = 100,.05 = 2,000,000 . A
perpetuity is a constant stream of cash flows that lasts forever.
10. 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?
A. .17
B. .18
C. .21
D. .15
Correct Answer: C
Expert Rationale: CAPM: E(r) = Risk-Free Rate + Beta × (Market Yield – Risk-Free Rate) = .03 +
1.5 × (.15 – .03) = .21 . The Capital Asset Pricing Model calculates expected return based on
systematic risk.
11. 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%.
A. .1275
B. .125
C. .1225
D. .1095
Correct Answer: D
Expert Rationale: WACC = (E/V × Re) + (D/V × Rd × (1 – T)) = (500/800 × .15) + (300/800 × .07
× .6) = .09375 + .01575 = .1095 . The weighted average cost of capital represents the firm's
overall cost of financing.
12. 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
Actual study Questions and Answers + Expert
Rationales | 2026 Updates | 100% correct
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)?
A. 100,000
B. 110,000
C. 120,000
D. (130,000)
Correct Answer: B
Expert Rationale: CFO = Net Income + Depreciation – Increase in NWC = 100,000 + 25,000 –
15,000 = 110,000. Depreciation is a non-cash expense that is added back to net income, while
increases in working capital represent uses of cash.
2. What is the Cash Flow from Investing? Beginning Net PP&E 50,000, Ending Net PP&E
200,000, Depreciation Expense 40,000
A. (190,000)
B. 150,000
C. 200,000
D. (150,000)
Correct Answer: A
Expert Rationale: CFI = –(Change in Net PPE + Depreciation) = –[(200,000 – 50,000) + 40,000] =
–190,000 . The negative sign indicates cash outflow for investment in fixed assets.
3. 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
A. 150,000
B. 120,000
C. 100,000
D. 145,000
,Correct Answer: B
Expert Rationale: CFF = Increase in Stock + Increase in Debt – Dividends Paid = 75,000 + 125,000
– 80,000 = 120,000 . Stock issuance and bond increases are sources of cash; dividends are a use
of cash.
4. A couple wants to save for a down payment on a house. They think they need to
accumulate 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?
A. 22,096
B. 17,752
C. 18,097
D. 18,462
Correct Answer: C
Expert Rationale: Using the BA II Plus calculator: 100,000 FV, 5 N, 5 I/Y, CPT PMT = 18,097 . This
is a future value of an ordinary annuity problem.
5. 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?
A. 20%
B. 15%
C. 25%
D. 14%
Correct Answer: A
Expert Rationale: SGR = ROE × (1 – Payout Ratio). Net Income = (70 – 50) × (1 – 0.4) = 12. ROE =
12/40 = 0.30. Payout Ratio = 4/12 = 0.33. SGR = 0.30 × (1 – 0.33) = 0.20 = 20% . The SGR
represents the maximum growth rate a firm can achieve without external financing.
6. 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?
,A. 6.71%
B. 5.50%
C. 5.66%
D. 6.33%
Correct Answer: C
Expert Rationale: Calculator inputs: 20 N, 1000 FV, 25 PMT, -950 PV. CPT I/Y = 2.83 × 2 = 5.66% .
YTM is the return an investor earns if the bond is held to maturity.
7. 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%?
A. 75
B. 79
C. 82
D. 85
Correct Answer: C
Expert Rationale: Calculator inputs: 1 N, -75 PV, 2 PMT, 12 I/Y, CPT FV = 82 . The future stock
price equals the present value plus expected return minus dividends.
8. 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 a 10% return on your
investment?
A. 41.75
B. 42
C. 41
D. 39
Correct Answer: B
Expert Rationale: Price = (Dividend × (1 + g)) / (r – g) = (2 × 1.05) / (0.10 – 0.05) = 42 . This is the
Gordon Growth Model (Constant Growth Model).
9. 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%?
, A. 1,000,000
B. 5,000,000
C. 500,000
D. 2,000,000
Correct Answer: D
Expert Rationale: Perpetuity PV = Payment / Interest Rate = 100,.05 = 2,000,000 . A
perpetuity is a constant stream of cash flows that lasts forever.
10. 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?
A. .17
B. .18
C. .21
D. .15
Correct Answer: C
Expert Rationale: CAPM: E(r) = Risk-Free Rate + Beta × (Market Yield – Risk-Free Rate) = .03 +
1.5 × (.15 – .03) = .21 . The Capital Asset Pricing Model calculates expected return based on
systematic risk.
11. 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%.
A. .1275
B. .125
C. .1225
D. .1095
Correct Answer: D
Expert Rationale: WACC = (E/V × Re) + (D/V × Rd × (1 – T)) = (500/800 × .15) + (300/800 × .07
× .6) = .09375 + .01575 = .1095 . The weighted average cost of capital represents the firm's
overall cost of financing.
12. 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
