WGU C214 PRE-ASSESSMENT EXAM
QUESTIONS AND ANSWERS
What must have taken place for a firm to recognize revenue, in order for the firm to
comply with the accrual accounting rules? - ANSWER-The product must have been
delivered.
A teacher won $100,000 and invests this money for 5 years at an interest rate of 4%
(compounded
annually).
How much will the teacher have in principal and interest at the end of the 5 years? -
ANSWER-$121,665
An accountantis 40 years old with an anticipated retirement age of 70 years old. The
accountant plans to
save $6,000 per year at the end of the next 30 years to fund retirement. - ANSWER-
$336,510
An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest
bearing account. The
last cash flow is received 1 year prior to the end ofthe tenth year.
What is the investor's future balance after 10 years? - ANSWER-$24,973
What is the par value (face value) of a bond? - ANSWER-The sum of money that the
corporation promises to pay upon expiration of the bond.
A broker is considering purchasing common stock in a company that has average
but consistent operating
performance.
Which factor should lead the broker to purchase shares in this company? -
ANSWER-The current price of the stock is 25% below its intrinsic value.
A broker is considering buying a dividend-paying stock. The dividend will be paid
atthe end of the year.
The analyst consensus is the stock will be worth $36 in one year. The company pays
a $2.25 annual
dividend (ex dividend date is not a consideration,the broker will receive the full
$2.25), and the broker
expects a 12% rate of return
What is the highest price the broker should be willing to pay for the stock? -
ANSWER-$34.15
What is the firm's cash flow from investments, using the data above and assuming
no asset disposals? - ANSWER-$5,300 outflow
, What is the basic equation for a balance sheet? - ANSWER-Assets = Liabilities +
Equity
What do cash flows from investing activities generally relate to? - ANSWER-A firm's
purchase and sale of long-term assets
Which transaction is reflected in cash flow from operating activities? - ANSWER-
Cash sales to customers
What does free cash flow represent? - ANSWER-Cash available for distribution after
funding required reinvestment
An analyst is comparing the ratios of two firms and needs to address timing
differences. What would be considered an example of a timing difference between
the two firms? - ANSWER-The firms have different fiscal years.
A company's year-end balance sheetfor 2013 shows the following:
Accounts receivable: $900
Inventory: $1200
Fixed assets: $1000
Accounts payable: $1300
Sales: $4000
Salaries expense: $275
What is their fixed asset turnover ratio? - ANSWER-4.0
A firm has a ROE (return on equity) of 0.27 and the industry average ROE is 0.24.
Which conclusion would an analyst draw when comparing the firm to the industry? -
ANSWER-The firm is generating higher returns to owners than the industry.
A person buys shares of a company at $45. They recently paid a $2 annual dividend
which is expected to
grow by 10% per year.
What is the expected return per year? - ANSWER-14.9%
Which investment option is less desirable for a prudent investor? - ANSWER-
Quadrant 4, bottom left, 3/4 to right side. Also E. for answer.
The market rate of return is 9%. The face value ofthe bond is $1000,the coupon rate
is 9% with annual
compounding, and the bond matures in 10 years.
What is the value of the bond? - ANSWER-$1,000
Which statement is true about fluctuations in bond prices? - ANSWER-When the
market interest rates fluctuate, the required rate of return equals the bond coupon
rate.
QUESTIONS AND ANSWERS
What must have taken place for a firm to recognize revenue, in order for the firm to
comply with the accrual accounting rules? - ANSWER-The product must have been
delivered.
A teacher won $100,000 and invests this money for 5 years at an interest rate of 4%
(compounded
annually).
How much will the teacher have in principal and interest at the end of the 5 years? -
ANSWER-$121,665
An accountantis 40 years old with an anticipated retirement age of 70 years old. The
accountant plans to
save $6,000 per year at the end of the next 30 years to fund retirement. - ANSWER-
$336,510
An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest
bearing account. The
last cash flow is received 1 year prior to the end ofthe tenth year.
What is the investor's future balance after 10 years? - ANSWER-$24,973
What is the par value (face value) of a bond? - ANSWER-The sum of money that the
corporation promises to pay upon expiration of the bond.
A broker is considering purchasing common stock in a company that has average
but consistent operating
performance.
Which factor should lead the broker to purchase shares in this company? -
ANSWER-The current price of the stock is 25% below its intrinsic value.
A broker is considering buying a dividend-paying stock. The dividend will be paid
atthe end of the year.
The analyst consensus is the stock will be worth $36 in one year. The company pays
a $2.25 annual
dividend (ex dividend date is not a consideration,the broker will receive the full
$2.25), and the broker
expects a 12% rate of return
What is the highest price the broker should be willing to pay for the stock? -
ANSWER-$34.15
What is the firm's cash flow from investments, using the data above and assuming
no asset disposals? - ANSWER-$5,300 outflow
, What is the basic equation for a balance sheet? - ANSWER-Assets = Liabilities +
Equity
What do cash flows from investing activities generally relate to? - ANSWER-A firm's
purchase and sale of long-term assets
Which transaction is reflected in cash flow from operating activities? - ANSWER-
Cash sales to customers
What does free cash flow represent? - ANSWER-Cash available for distribution after
funding required reinvestment
An analyst is comparing the ratios of two firms and needs to address timing
differences. What would be considered an example of a timing difference between
the two firms? - ANSWER-The firms have different fiscal years.
A company's year-end balance sheetfor 2013 shows the following:
Accounts receivable: $900
Inventory: $1200
Fixed assets: $1000
Accounts payable: $1300
Sales: $4000
Salaries expense: $275
What is their fixed asset turnover ratio? - ANSWER-4.0
A firm has a ROE (return on equity) of 0.27 and the industry average ROE is 0.24.
Which conclusion would an analyst draw when comparing the firm to the industry? -
ANSWER-The firm is generating higher returns to owners than the industry.
A person buys shares of a company at $45. They recently paid a $2 annual dividend
which is expected to
grow by 10% per year.
What is the expected return per year? - ANSWER-14.9%
Which investment option is less desirable for a prudent investor? - ANSWER-
Quadrant 4, bottom left, 3/4 to right side. Also E. for answer.
The market rate of return is 9%. The face value ofthe bond is $1000,the coupon rate
is 9% with annual
compounding, and the bond matures in 10 years.
What is the value of the bond? - ANSWER-$1,000
Which statement is true about fluctuations in bond prices? - ANSWER-When the
market interest rates fluctuate, the required rate of return equals the bond coupon
rate.
