WGU C214 FINANCIAL MANAGEMENT EXAM NEW
UPDATED QUESTIONS AND FULLY CORRECT ANSWERS
300 QUESTIONS AND ANSWERS
1. What is the primary goal of financial management? Answer: To
maximize shareholder wealth by maximizing the value of the firm's stock.
2. What are the three main areas of finance? Answer: Corporate finance,
investments, and financial institutions/markets.
3. What is the difference between profit maximization and wealth
maximization? Answer: Profit maximization focuses on short-term
gains, while wealth maximization considers long-term value creation and
risk.
4. What is agency theory? Answer: The relationship between principals
(shareholders) and agents (managers) and the potential conflicts of
interest between them.
5. What are agency costs? Answer: Costs incurred to monitor managers
and align their interests with shareholders' interests.
6. What is the role of a financial manager? Answer: To make investment
decisions, financing decisions, and dividend decisions that maximize firm
value.
7. What are the four basic financial statements? Answer: Income
statement, balance sheet, statement of cash flows, and statement of
retained earnings.
8. What is the difference between book value and market value?
Answer: Book value is the accounting value on financial statements;
market value is the current price in the marketplace.
, 9. What is working capital? Answer: Current assets minus current
liabilities.
10.What is the time value of money? Answer: The concept that money
available today is worth more than the same amount in the future due to
its earning potential.
Chapter 2: Financial Statements and Analysis
11.What does the income statement show? Answer: A company's
revenues, expenses, and net income over a specific period.
12.What does the balance sheet show? Answer: A company's assets,
liabilities, and equity at a specific point in time.
13.What is the accounting equation? Answer: Assets = Liabilities + Equity
14.What is EBITDA? Answer: Earnings Before Interest, Taxes,
Depreciation, and Amortization.
15.What is the current ratio? Answer: Current assets divided by current
liabilities; measures short-term liquidity.
16.What is the quick ratio? Answer: (Current assets - inventory) divided
by current liabilities; measures immediate liquidity.
17.What is the debt-to-equity ratio? Answer: Total debt divided by total
equity; measures financial leverage.
18.What is ROA (Return on Assets)? Answer: Net income divided by total
assets; measures how efficiently assets generate profits.
19.What is ROE (Return on Equity)? Answer: Net income divided by
shareholders' equity; measures return to shareholders.
20.What is the gross profit margin? Answer: (Revenue - Cost of goods
sold) divided by revenue; measures pricing power and cost control.
21.What is the net profit margin? Answer: Net income divided by
revenue; measures overall profitability.
22.What is inventory turnover? Answer: Cost of goods sold divided by
average inventory; measures how quickly inventory is sold.
23.What is the accounts receivable turnover? Answer: Net credit sales
divided by average accounts receivable; measures collection efficiency.
, 24.What is the times interest earned ratio? Answer: EBIT divided by
interest expense; measures ability to pay interest obligations.
25.What is the price-to-earnings (P/E) ratio? Answer: Market price per
share divided by earnings per share; measures market valuation.
Chapter 3: Time Value of Money
26.What is present value? Answer: The current value of a future sum of
money discounted at an appropriate interest rate.
27.What is future value? Answer: The value of a current sum of money at a
future date given a specific interest rate.
28.What is the formula for future value? Answer: FV = PV × (1 + r)^n
29.What is the formula for present value? Answer: PV = FV / (1 + r)^n
30.What is an annuity? Answer: A series of equal payments made at
regular intervals.
31.What is an ordinary annuity? Answer: An annuity where payments are
made at the end of each period.
32.What is an annuity due? Answer: An annuity where payments are made
at the beginning of each period.
33.What is a perpetuity? Answer: An annuity that continues forever.
34.What is the present value of an ordinary annuity formula? Answer:
PV = PMT × [(1 - (1 + r)^-n) / r]
35.What is the future value of an ordinary annuity formula? Answer: FV
= PMT × [((1 + r)^n - 1) / r]
36.What is compounding? Answer: The process of earning interest on both
principal and previously earned interest.
37.What is the effective annual rate (EAR)? Answer: The actual annual
rate of return after accounting for compounding.
38.What is the annual percentage rate (APR)? Answer: The simple
annual interest rate without compounding effects.
39.What is continuous compounding? Answer: Compounding that occurs
continuously, using the formula FV = PV × e^(rt).
40.What is discounting? Answer: The process of determining the present
value of future cash flows.
UPDATED QUESTIONS AND FULLY CORRECT ANSWERS
300 QUESTIONS AND ANSWERS
1. What is the primary goal of financial management? Answer: To
maximize shareholder wealth by maximizing the value of the firm's stock.
2. What are the three main areas of finance? Answer: Corporate finance,
investments, and financial institutions/markets.
3. What is the difference between profit maximization and wealth
maximization? Answer: Profit maximization focuses on short-term
gains, while wealth maximization considers long-term value creation and
risk.
4. What is agency theory? Answer: The relationship between principals
(shareholders) and agents (managers) and the potential conflicts of
interest between them.
5. What are agency costs? Answer: Costs incurred to monitor managers
and align their interests with shareholders' interests.
6. What is the role of a financial manager? Answer: To make investment
decisions, financing decisions, and dividend decisions that maximize firm
value.
7. What are the four basic financial statements? Answer: Income
statement, balance sheet, statement of cash flows, and statement of
retained earnings.
8. What is the difference between book value and market value?
Answer: Book value is the accounting value on financial statements;
market value is the current price in the marketplace.
, 9. What is working capital? Answer: Current assets minus current
liabilities.
10.What is the time value of money? Answer: The concept that money
available today is worth more than the same amount in the future due to
its earning potential.
Chapter 2: Financial Statements and Analysis
11.What does the income statement show? Answer: A company's
revenues, expenses, and net income over a specific period.
12.What does the balance sheet show? Answer: A company's assets,
liabilities, and equity at a specific point in time.
13.What is the accounting equation? Answer: Assets = Liabilities + Equity
14.What is EBITDA? Answer: Earnings Before Interest, Taxes,
Depreciation, and Amortization.
15.What is the current ratio? Answer: Current assets divided by current
liabilities; measures short-term liquidity.
16.What is the quick ratio? Answer: (Current assets - inventory) divided
by current liabilities; measures immediate liquidity.
17.What is the debt-to-equity ratio? Answer: Total debt divided by total
equity; measures financial leverage.
18.What is ROA (Return on Assets)? Answer: Net income divided by total
assets; measures how efficiently assets generate profits.
19.What is ROE (Return on Equity)? Answer: Net income divided by
shareholders' equity; measures return to shareholders.
20.What is the gross profit margin? Answer: (Revenue - Cost of goods
sold) divided by revenue; measures pricing power and cost control.
21.What is the net profit margin? Answer: Net income divided by
revenue; measures overall profitability.
22.What is inventory turnover? Answer: Cost of goods sold divided by
average inventory; measures how quickly inventory is sold.
23.What is the accounts receivable turnover? Answer: Net credit sales
divided by average accounts receivable; measures collection efficiency.
, 24.What is the times interest earned ratio? Answer: EBIT divided by
interest expense; measures ability to pay interest obligations.
25.What is the price-to-earnings (P/E) ratio? Answer: Market price per
share divided by earnings per share; measures market valuation.
Chapter 3: Time Value of Money
26.What is present value? Answer: The current value of a future sum of
money discounted at an appropriate interest rate.
27.What is future value? Answer: The value of a current sum of money at a
future date given a specific interest rate.
28.What is the formula for future value? Answer: FV = PV × (1 + r)^n
29.What is the formula for present value? Answer: PV = FV / (1 + r)^n
30.What is an annuity? Answer: A series of equal payments made at
regular intervals.
31.What is an ordinary annuity? Answer: An annuity where payments are
made at the end of each period.
32.What is an annuity due? Answer: An annuity where payments are made
at the beginning of each period.
33.What is a perpetuity? Answer: An annuity that continues forever.
34.What is the present value of an ordinary annuity formula? Answer:
PV = PMT × [(1 - (1 + r)^-n) / r]
35.What is the future value of an ordinary annuity formula? Answer: FV
= PMT × [((1 + r)^n - 1) / r]
36.What is compounding? Answer: The process of earning interest on both
principal and previously earned interest.
37.What is the effective annual rate (EAR)? Answer: The actual annual
rate of return after accounting for compounding.
38.What is the annual percentage rate (APR)? Answer: The simple
annual interest rate without compounding effects.
39.What is continuous compounding? Answer: Compounding that occurs
continuously, using the formula FV = PV × e^(rt).
40.What is discounting? Answer: The process of determining the present
value of future cash flows.
