WGU - C214 Financial Management – Final
questions with verified answers
At what price will a bond sell if the required rate of return is equal to the coupon
rate? Ans✓✓✓ The price will be equal to its par value. At a par price, the yield
will equal the coupon rate.
Cash Flow from Financing Activities (CFF) Ans✓✓✓ Cash flow that is used to fund
the company. Cash flow that is generated from financing the business. Includes
Debt & Equity.
Cash Flow from Investing Activities (CFI) Ans✓✓✓ Cash flow that is generated
from investments in long term assets.
Cash Flow from Operating Activities (CFO) Ans✓✓✓ Cash flow that a company
generates as a result of day-to-day business operations. Deals with Current Assets
and Current Liabilities.
Define a convertible bond Ans✓✓✓ More than being a type of bonds,
convertibility is a feature that may be added to any bond type. Convertibility
refers to the ability to convert a bond into equity securities, usually common
stock. It gives the investor the right to trade each bond for a set number of shares
of common stock whenever the investor chooses
Define DFN Ans✓✓✓ Discretionary Financing Needed. The difference between
total assets and total liabilities and owner's equity is referred to as discretionary
financing needed. In other words, this is the amount of discretionary financing
that the firm thinks it will need to raise in the next year.
, Define Efficient Frontier Ans✓✓✓ Maximizes expected return for a given level of
risk
Define efficient market hypothesis as it relates to a firm? Ans✓✓✓ For any
company to survive, they need to make profitable decisions. Otherwise, investors
will shun their business. The firm needs to invest where the return is more than
the cost.
Define Free Cash Flow Ans✓✓✓ Cash flows from operating activities minus cash
necessary for reinvestment in PPE. Free cash flows represent Cash available for
distribution after funding required reinvestment
Define Free Cash Flow Ans✓✓✓ Represents the cash a company generates after
accounting for cash outflows to support operations and maintain its capital assets
Define IRR? Ans✓✓✓ Another method used for long term investment decisions is
the internal rate of return (IRR) method. This method is considered inferior to
NPV. Internal Rate of Return (IRR) is defined as the discount rate that results in a
Zero Net Present Value.
Define NPV? Ans✓✓✓ Net Present Value method is the method that is
universally used by companies to evaluate long term investment decisions.
NPV is defined as the present value of after-tax net tax flows and is most common
used method in capital budgeting.
The Net Present value should be positive in order for a company to proceed with
an investment. If it is negative, the company should not proceed.
questions with verified answers
At what price will a bond sell if the required rate of return is equal to the coupon
rate? Ans✓✓✓ The price will be equal to its par value. At a par price, the yield
will equal the coupon rate.
Cash Flow from Financing Activities (CFF) Ans✓✓✓ Cash flow that is used to fund
the company. Cash flow that is generated from financing the business. Includes
Debt & Equity.
Cash Flow from Investing Activities (CFI) Ans✓✓✓ Cash flow that is generated
from investments in long term assets.
Cash Flow from Operating Activities (CFO) Ans✓✓✓ Cash flow that a company
generates as a result of day-to-day business operations. Deals with Current Assets
and Current Liabilities.
Define a convertible bond Ans✓✓✓ More than being a type of bonds,
convertibility is a feature that may be added to any bond type. Convertibility
refers to the ability to convert a bond into equity securities, usually common
stock. It gives the investor the right to trade each bond for a set number of shares
of common stock whenever the investor chooses
Define DFN Ans✓✓✓ Discretionary Financing Needed. The difference between
total assets and total liabilities and owner's equity is referred to as discretionary
financing needed. In other words, this is the amount of discretionary financing
that the firm thinks it will need to raise in the next year.
, Define Efficient Frontier Ans✓✓✓ Maximizes expected return for a given level of
risk
Define efficient market hypothesis as it relates to a firm? Ans✓✓✓ For any
company to survive, they need to make profitable decisions. Otherwise, investors
will shun their business. The firm needs to invest where the return is more than
the cost.
Define Free Cash Flow Ans✓✓✓ Cash flows from operating activities minus cash
necessary for reinvestment in PPE. Free cash flows represent Cash available for
distribution after funding required reinvestment
Define Free Cash Flow Ans✓✓✓ Represents the cash a company generates after
accounting for cash outflows to support operations and maintain its capital assets
Define IRR? Ans✓✓✓ Another method used for long term investment decisions is
the internal rate of return (IRR) method. This method is considered inferior to
NPV. Internal Rate of Return (IRR) is defined as the discount rate that results in a
Zero Net Present Value.
Define NPV? Ans✓✓✓ Net Present Value method is the method that is
universally used by companies to evaluate long term investment decisions.
NPV is defined as the present value of after-tax net tax flows and is most common
used method in capital budgeting.
The Net Present value should be positive in order for a company to proceed with
an investment. If it is negative, the company should not proceed.
