WGU C214 Financial Management OA Study Set Solved 100%

Trading on the NYSE is executed without a specialist (i.e. a market maker). True or False? - Answer False Stocks and Bonds are two types of financial instruments. True or False? - Answer True When revenue is matched with cost of sales in an Income statement it is called? - Answer Matching principle Basic balance sheet equation is what? - Answer Equity = Assets - Liabilities Why is the balance sheet known as the permanent statement? - Answer Because the other statements are reset at the end of the fiscal year. How do you calculate the change in retained earnings? - Answer Net income-dividends Sales - Cost of Sales - other expenses = - Answer Operating Income or EBiT Name four accounts that are part of total assets? - Answer Cash, Accounts receivable, inventory, long term assets Name three accounts that are part of total liabilities? - Answer Bonds, accounts payable and mortgage Name four accounts that are part of current assets? - Answer Inventory, cash, accounts receivable and short term investments. Name three accounts that are only included in cash flow from financing? - Answer Common stock, dividends paid and bonds payable Define the statement of cash flows? - Answer Calculated for the same period of time as the incomes statement is calculated based on the income statement and changes in the balance sheet is one of the three basic accounting statements. When fixed assets increase what happens to cash? - Answer Cash will decrease What is the purpose of the statement of cash flows? - Answer Explains the change in cash over the course of the specified time frame. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? - Answer The firm has too little inventory resulting in lost sales or stock-outs. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? - Answer Higher The Operating Income Return on Investment (OIROI) uses what elements on the income statement? - Answer EBIT and total assets Why would a company be interested in the Total Asset Turnover (TAT) ratio? - Answer To see how efficient are at producing sales What annual interest will be paid for a zero coupon bond? - Answer 0% What is the most significant characteristic of subordinated debt? - Answer Senior debt is paid off first If a company wants to increase its debt capital, how will they raise the funds? - Answer Sell bonds What is the lowest level investment bond - Answer BBB What can cause the bond price to fluctuate? - Answer A change in the bond rating, a change in the financial condition, general change in interest rates. What does a company use as security for a bond? - Answer Credit worthiness Under the efficient market hypothesis, what will companies endeavor to do? - Answer Maximize profits for a given level of risk What does the beta coefficient represent? - Answer It is a statistically derived measure of volatility. If an investor knows the idiosyncratic risk, the investor knows the? - Answer Beta Coefficient Why is the depreciation expense taken out of the net income calculation, yet added back at the end? - Answer Because depreciation expense is tax deductible. Why would we reject a project based on NPV? - Answer The NPV is a negative number Why would we reject a project based on IRR? - Answer The discount rate is higher than the IRR What are two key elements of differential cash flow? - Answer Depreciation expense and net income Why is the NPV preferred over the IRR? - Answer It measures the dollar value and is more reliable. When a company uses more leverage as evidenced by a higher degree of either financial or operating leverage, what effect does it have on changes in profitability? - Answer Higher leverage leads to higher profitability for a given sale level. What does the degree of financial leverage indicate? - Answer The reliance on debt If a company has a high degree of financial leverage, what does that tell us about the firms risk profile? - Answer Financial leverage also means that more financing is done through debt, not equity. Higher profits to shareholders. What is the cash cycle? - Answer The amount of time to regenerate cash. Why is float important to understand? - Answer To time cash expenditures What should a company do to manage its working capital? - Answer Collect quickly and pay slowly Name what characterizes increased collection float? - Answer Increased float indicates slower processing time. In regards to Accounts Payable Balances, what is a good policy? - Answer Paying off A/P on the last day due is a good policy. What would be a good source of information to determine replacement cost? - Answer Building Appraisal Dodd-Frank Act regulates which segment of the U.S economy? - Answer Banking industry What is the regulatory body that overseas the systematic risk in banking? - Answer Financial stability oversight council The SEC securities and Exchange Commission requires companies to do the following three things: - Answer Register all public offerings, regulate stock sales and ensure transparency through uniform reporting. What does the Sarbanes-Oxley Act require companies to do? - Answer Have internal control audits, senior management responsible for signing off on statements and places restrictions on auditors.