WGU C214 Concepts Only Multi Choice Version Exam Questions With Correct Answers

Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F) - AnswerF Stocks and bonds are two types of financial instruments (T/F) - AnswerT The matching principle in accrual accounting requires that: a. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized. b. Expenses are matched to the year in which they are incurred c. Revenues are matched to the year in which they are booked d. Revenues should be large enough to match expenses - Answera A basic equation for the balance sheet is: a. Equity = Assets - Liabilities b. Liabilities = Equity + Assets c. Assets = Liabilities - Equity d. Assets = Equity - Liabilities - Answera Why is the Balance Sheet known as a permanent statement? a. Because the statement is sent to the SEC. b. Because the other statements are reset at the end of the fiscal year c. Because it is printed out and archived d. Because it persists in the minds of the shareholders. - Answerb How do you calculate the change in Retained Earnings? a. Ending Retained Earnings - Change in Cash b. EBIT divided by Total Assets + Dividends c. EBIT - Change in Cash - Dividends d. Net Income - Dividends - Answerd Which of the following is generally true? a. Gross Profit and Operating Income are the same b. Cost of Goods Sold + Operating Expenses = Net Income c. Operating Income and EBIT are the same d. EBIT + Income Taxes = Net income - Answerc Which components are part of total assets? a. Cash, Accounts Receivable, Short Term Debt b. Cash Accounts Receivable, Inventory, Long Term Assets c. Accounts Payable, Long Term Assets, Long Term Debt d. Accounts Payable, Net Income, Equity - Answerb Which components are part of current assets? a. Cash, Accounts Receivable, Property Plant & Equipment b. Accounts Receivable, Accounts Payable, Inventory c. Long Term Debt, Property Plant & Equipment, Common Stock d. Inventory, Cash, Accounts Receivable, Short Term Investments - Answerd Which components are part of Total Liabilities? a. Accounts Payable, Accounts Receivable, Short Term Debt b. Long Term Debt, Common Stock, Retained Earnings c. Bonds, Accounts Payable, Mortgage d. Common Stock, Long Term Debt, Short Term Investments - Answerc When Fixed Assets increase what happens to Cash? a. Cash stays the same b. Cash increases c. Cash decreases d. Assets decrease - Answerc Which is the purpose of the statement of cash flows? a. serves as the replacement for the income statement and balance sheet b. explains the change in cash balance at one point in time c. explains the change in cash balance for one period of time d. both (a) and (b) above - Answerc The OIROI (Operating Income Return on Investment) uses what elements on the income statement? a. Operating Income, EBIT, Total Liabilities b. EBIT, Total Assets c. Sales, Total Assets, Equity d. Net Margin, Total Current Assets - Answerb Why would a company be interested in the TAT(Total Asset Turnover) ratio? a. How efficient assets are at producing income b. What the turnover of sales is to liabilities c. How efficient assets are at producing sales d. How efficient assets are to liabilities and equity - Answerc Which of the following gives the largest effective rate (APY) a. 18.6% compounded monthly b. 18.6% compounded daily c. 18.6% compounded weekly d. 18.6% compounded yearly - Answerb What does the beta coefficient represent? a. It is a statistically-derived measure of volatility b. It is the Expected Return minus the Growth Rate c. It is the volatility of the Risk Free Return d. It is the expected return for a basket of preferred stocks - Answera Why is depreciation expense taken out of the net income calculation, yet added back at the end? a. Because fixed assets should remain on the balance sheet b. Because depreciation is not a current asset c. Because depreciation is a non-cash liability d. Because depreciation expense is tax deductible - Answerd Why is the NPV preferred over the IRR? Pick Two a. It has a higher dollar value b. It measures the dollar value c. It is more reliable d. It is harder to calculate - Answerb, c What does the Degree of Financial Leverage indicate? a. The firms cash balance b. The cost of financed assets c. The reliance on debt d. The reliance on assets - Answerc If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile? a. Low Risk b. Appropriate Risk c. Higher ability to pay debt d. Higher profits to shareholders - Answerd 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 - Answerd 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 e. None of the above - Answerd What should a company do to manage its working capital? 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 - Answera What would be a source of information to determine Replacement Cost? a. Building Appraisal b. Accumulated Depreciation Expense c. Stock price d. Statement of Cash Flows - Answera 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 - Answerd FINRA (Financial Industry Regulatory Authority) does the following: (pick one) a. No foreign bribery by corporations b. Regulates bond prices c. Establishes Credit Unions d. Prosecutes naughty stock brokers e. Regulates Hedge Funds - Answerd 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 - Answerb 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. - Answerd If the value of a dollar increases, the price of imports: a. Increases b. Decreases c. Stays the same d. Fluctuates - Answerb Why would a farmer buy a hedge when he signs a contract to sell produce overseas? a. To avoid tariffs b. To reduce currency risk c. To increase profits d. To avoid competition - Answerb A basic equation for the balance sheet is: a. Equity = Assets - Liabilities b. Liabilities = Equity + Assets c. Assets = Liabilities - Equity d. Assets = Equity - Liabilities - Answera Why is the Balance Sheet known as a permanent statement? a. Because the statement is sent to the SEC. b. Because the other statements are reset at the end of the fiscal year c. Because it is printed out and archived d. Because it persists in the minds of the shareholders. - Answerb How do you calculate the change in Retained Earnings? a. Ending Retained Earnings - Change in Cash b. EBIT divided by Total Assets + Dividends c. EBIT - Change in Cash - Dividends d. Net Income - Dividends - Answerd Which of the following is generally true? a. Gross Profit and Operating Income are the same b. Cost of Goods Sold + Operating Expenses = Net Income c. Operating Income and EBIT are the same d. EBIT + Income Taxes = Net income - Answerc Which components are part of total assets? a. Cash, Accounts Receivable, Short Term Debt b. Cash Accounts Receivable, Inventory, Long Term Assets c. Accounts Payable, Long Term Assets, Long Term Debt d. Accounts Payable, Net Income, Equity - Answerb Which components are part of current assets? a. Cash, Accounts Receivable, Property Plant & Equipment b. Accounts Receivable, Accounts Payable, Inventory c. Long Term Debt, Property Plant & Equipment, Common Stock d. Inventory, Cash, Accounts Receivable, Short Term Investments - Answerd Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? a. The firm has lower liquidity than the industry average. b. The firm has too much inventory thus impairing overall liquidity. c. The firm has too little inventory resulting in lost sales or stock-outs. d. The firm has low sales volume. - Answerc If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? a. higher b. lower c. the same d. it doesn't matter - Answera If an investor knows the idiosyncratic risk, the investor knows the: a. Profit Margin percentage b. Beta Coefficient c. Operating Leverage d. Free Cash Flow - Answerb Why would we reject a project based on the NPV? a. The NPV is lower than the IRR b. The NPV is lower than investment c. The NPV is a negative number d. The IRR is positive. - Answerc Why would we reject a project based on the IRR? a. The IRR is higher than the sum of the cash flows b. The discount rate is lower than the IRR c. The IRR is higher than the NPV d. The discount rate is higher than the IRR - Answerd Company A wishes to keep 20% of its assets as cash. Company B keeps its cash balance at 5% of assets. Which of the following statements apply? a. Company A is less liquid than Company B b. Company B invests in more working current assets c. Company A uses better working capital management d. Company B has a more conservative cash policy - Answerb Company A offers trade credit of 2% 10 / net 30 and Company B offers trade credit at net 30. What can be said about the credit policies of each company? a. Company B has a looser credit policy b. Company A keeps more of its Accounts Receivable c. Company A can attract more customers d. Company B can attract more customer - Answerc Which of the following characterizes collection float a. Longer float indicates good financial practices b. Increased float indicates slower processing time c. Accounts receivable increase with shorter float d. Liquidity is enhanced with longer float - Answerb Company A's inventory is larger than Company B. Both companies are competitors and are about the same size. What does this difference mean from a working capital management standpoint? a. Company B has lower inventory float b. Company A has more cash in hand c. Company B might have higher inventory turnover d. Company A has tighter credit. - Answerc In regards to Accounts Payable balances, which of the following is true: a. Higher Accounts Payable is better than a lower balance b. Paying off A/P as soon as possible is good policy c. Increased Accounts Payable means faster collections d. Paying off A/P on the last day due is good policy - Answerd If two companies have earnings of $2,000,000, and Company X has a multiple of 1.2 and Company Z has a multiple of 2.0, what can we estimate about the value of each company? a. The value is the same b. The value of Company X is higher c. The value of Company Z is higher d. The relative value can't be determined - Answerc Dodd-Frank regulates which segment of the U.S. Economy? a. Fannie Mae and Freddie Mac (Housing financing) b. Banking Industry