WGU C214 OA Financial Management Exam Questions
and Answers Updated (2024/2025) (Verified Answers)
At what price will a bond sell if the required rate of return is equal to the coupon rate? -
ansThe 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) - ansCash 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) - ansCash flow that is generated from
investments in long term assets.
Cash Flow from Operating Activities (CFO) - ansCash 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 - ansMore 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 - ansDiscretionary 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 - ansMaximizes expected return for a given level of risk
Define efficient market hypothesis as it relates to a firm? - ansFor 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 - ansCash 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 - ansRepresents the cash a company generates after
accounting for cash outflows to support operations and maintain its capital assets
Define IRR? - ansAnother 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.
,WGU C214 OA Financial Management Exam Questions
and Answers Updated (2024/2025) (Verified Answers)
Define NPV? - ansNet 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.
Define or describe an income statement? - ansReports the company's revenues and
expenses during a particular period of time. Also reports net income or net loss. Always
prepared first.
Define or describe current ratio? - ansThe Current Ratio is a measure of short-term
liquidity to pay short term obligations
Define WACC - ansWeighted Average Cost of Capital. The WACC is the weighted
average of the various costs of equity and costs of debt.
For every Bond question, what must be entered? - ansFV must be entered as 1000
PMT must be entered as 1000 x Coupon Rate
Give an example of an accounting difference? - ansCompanies using different
accounting methods / such as Inventory.
Give two examples of accounting estimates used in financial accounting? -
ansDepreciation and Salvage Value
How do firms manage working capital? - ansTry to collect funds as quickly from
customers as possible and pay bills as slowly as possible.
How does a rating downgrade/upgrade impact the cost of capital? - ansA positive credit
rating lowers the cost of capital and a negative credit rating increases the cost of capital.
How does an increase in Accounts payable impact CFO? - ansAn Increase in Accounts
Payable will increase CFO
How does an increase in Accounts receivable impact CFO? - ansAn Increase in
Accounts receivable will decrease CFO
How does an increase in market interest rate impact the cost of debt? - ansThe cost of
debt will decrease
How is the expected return from the CAPM model used in financial decisions? -
ansAllows to determine the expected return on stocks and incorporate risks
Name two basic types of financial instruments? - ansStocks and Bonds
, WGU C214 OA Financial Management Exam Questions
and Answers Updated (2024/2025) (Verified Answers)
Name two types of secondary markets? - ansNew York Stock Exchange (NYSE) and
the NASDAQ
Statement of Cash Flows - ansShows the change in cash balance for a period of time.
Focuses only on items where cash is received, or cash is paid.
What are Primary Markets? - ansWhere companies sell securities directly to investors
What are Secondary Markets? - ansWhere securities are bought and sold from third
parties like the New York Stock Exchange
What are the requirements of FINRA? - ans- FINRA Requires customers maintain up to
date customer records
- You must be a member of FINRA before you can sell investment products to the public
What are the requirements of Sarbanes-Oxley Act of 2002? - ans- Requires companies
to have strong internal control systems / audits so that management is less likely to
commit fraud.
- Requires Management to prepare honest, fair and accurate financial statements
What are the three costs associated with inventory? - ans- Product Costs
- Storage Costs
- Opportunity Costs
What can a firm do as a result of Regulation S and Rule 144A? - ansThese are both
considered safe harbor permissions where a company does not have to get the
permission of the SEC.
What does the Volcker rule do in the Dodd-Frank act? - ansThis rule limits the amount
of money can invest in Hedge Funds by banks.
What financial ratio is used in the comparables method? - ansP/E Ratio or
Price/Earnings Ratio
What financial ratios are used to determine efficient working capital management? -
ans- Current Ratio
- Cash Ratio
- Receivables Turnover Ratio
What financial statement is prepared at a point in time - ansBalance Sheet
What financial statements are prepared for a period of time? - ans· Income Statement
· Retained Earnings Statement
· Statement of Cash Flows
and Answers Updated (2024/2025) (Verified Answers)
At what price will a bond sell if the required rate of return is equal to the coupon rate? -
ansThe 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) - ansCash 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) - ansCash flow that is generated from
investments in long term assets.
Cash Flow from Operating Activities (CFO) - ansCash 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 - ansMore 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 - ansDiscretionary 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 - ansMaximizes expected return for a given level of risk
Define efficient market hypothesis as it relates to a firm? - ansFor 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 - ansCash 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 - ansRepresents the cash a company generates after
accounting for cash outflows to support operations and maintain its capital assets
Define IRR? - ansAnother 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.
,WGU C214 OA Financial Management Exam Questions
and Answers Updated (2024/2025) (Verified Answers)
Define NPV? - ansNet 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.
Define or describe an income statement? - ansReports the company's revenues and
expenses during a particular period of time. Also reports net income or net loss. Always
prepared first.
Define or describe current ratio? - ansThe Current Ratio is a measure of short-term
liquidity to pay short term obligations
Define WACC - ansWeighted Average Cost of Capital. The WACC is the weighted
average of the various costs of equity and costs of debt.
For every Bond question, what must be entered? - ansFV must be entered as 1000
PMT must be entered as 1000 x Coupon Rate
Give an example of an accounting difference? - ansCompanies using different
accounting methods / such as Inventory.
Give two examples of accounting estimates used in financial accounting? -
ansDepreciation and Salvage Value
How do firms manage working capital? - ansTry to collect funds as quickly from
customers as possible and pay bills as slowly as possible.
How does a rating downgrade/upgrade impact the cost of capital? - ansA positive credit
rating lowers the cost of capital and a negative credit rating increases the cost of capital.
How does an increase in Accounts payable impact CFO? - ansAn Increase in Accounts
Payable will increase CFO
How does an increase in Accounts receivable impact CFO? - ansAn Increase in
Accounts receivable will decrease CFO
How does an increase in market interest rate impact the cost of debt? - ansThe cost of
debt will decrease
How is the expected return from the CAPM model used in financial decisions? -
ansAllows to determine the expected return on stocks and incorporate risks
Name two basic types of financial instruments? - ansStocks and Bonds
, WGU C214 OA Financial Management Exam Questions
and Answers Updated (2024/2025) (Verified Answers)
Name two types of secondary markets? - ansNew York Stock Exchange (NYSE) and
the NASDAQ
Statement of Cash Flows - ansShows the change in cash balance for a period of time.
Focuses only on items where cash is received, or cash is paid.
What are Primary Markets? - ansWhere companies sell securities directly to investors
What are Secondary Markets? - ansWhere securities are bought and sold from third
parties like the New York Stock Exchange
What are the requirements of FINRA? - ans- FINRA Requires customers maintain up to
date customer records
- You must be a member of FINRA before you can sell investment products to the public
What are the requirements of Sarbanes-Oxley Act of 2002? - ans- Requires companies
to have strong internal control systems / audits so that management is less likely to
commit fraud.
- Requires Management to prepare honest, fair and accurate financial statements
What are the three costs associated with inventory? - ans- Product Costs
- Storage Costs
- Opportunity Costs
What can a firm do as a result of Regulation S and Rule 144A? - ansThese are both
considered safe harbor permissions where a company does not have to get the
permission of the SEC.
What does the Volcker rule do in the Dodd-Frank act? - ansThis rule limits the amount
of money can invest in Hedge Funds by banks.
What financial ratio is used in the comparables method? - ansP/E Ratio or
Price/Earnings Ratio
What financial ratios are used to determine efficient working capital management? -
ans- Current Ratio
- Cash Ratio
- Receivables Turnover Ratio
What financial statement is prepared at a point in time - ansBalance Sheet
What financial statements are prepared for a period of time? - ans· Income Statement
· Retained Earnings Statement
· Statement of Cash Flows
