WGU C214 Financial Management Exam – Verified Questions
and Correct Answers & Step-by-Step Rationales
Question 1
What is the relationship between WACC and IRR?
a. Just 2 different numbers
b. IRR must exceed WACC to accept investment
c. WACC must exceed IRR to accept investment
d. WACC and IRR are the same thing
Correct Answer
B
IRR must exceed WACC to accept investment
Page 1 of 63
,Question 2
The market yield is 15% and Treasury bonds are yielding 3%. If a stock has a beta of 1.5. What is that stock's expected
return?
a. .17
b. .18
c. .21
d. .15
Correct Answer
E(r) = Risk Free Rate + Beta * ( Market Yield - Risk Free Rate)
E(r) = Risk Free Rate + Beta * ( Market Risk Premium)
=.03 + 1.5 * (.15 - .03)
=.03 + .18
=.21
Question 3
Which factor does NOT affect a firm's WACC?
a. The market risk premium
b. The tax rate
c. Treasury yields
d. The foreign exchange rate
Correct Answer
D
The foreign exchange rate
Page 2 of 63
,Question 4
Which of the following is the "best" investment"?
a. 90-day Treasury bills yielding 2%
b. 5-year Treasury bonds yielding 3%
c. Stocks with expected returns of 7%
d. Depends on risk preferences of the investor
Correct Answer
D
Depends on risk preferences of the investor
Question 5
What metric converts FV to PV?
a. The interest rate
b. Multiples
c. The PE ratio
d. None of the above
Correct Answer
A
The interest rate
Page 3 of 63
, Question 6
If IRR is greater than WACC, an adopted project,
a. Decreases shareholder value
b. Does not affect shareholder value
c. Increases shareholder value
d. Cannot be determined
Correct Answer
C
Increases shareholder value
Question 7
If you are assessing a firm's ability to meet short term obligations, you would use which ratio?
a. Debt ratio
b. Quick ratio
c. Gross margin
d. Financial leverage
Correct Answer
B
Quick Ratio
Page 4 of 63
and Correct Answers & Step-by-Step Rationales
Question 1
What is the relationship between WACC and IRR?
a. Just 2 different numbers
b. IRR must exceed WACC to accept investment
c. WACC must exceed IRR to accept investment
d. WACC and IRR are the same thing
Correct Answer
B
IRR must exceed WACC to accept investment
Page 1 of 63
,Question 2
The market yield is 15% and Treasury bonds are yielding 3%. If a stock has a beta of 1.5. What is that stock's expected
return?
a. .17
b. .18
c. .21
d. .15
Correct Answer
E(r) = Risk Free Rate + Beta * ( Market Yield - Risk Free Rate)
E(r) = Risk Free Rate + Beta * ( Market Risk Premium)
=.03 + 1.5 * (.15 - .03)
=.03 + .18
=.21
Question 3
Which factor does NOT affect a firm's WACC?
a. The market risk premium
b. The tax rate
c. Treasury yields
d. The foreign exchange rate
Correct Answer
D
The foreign exchange rate
Page 2 of 63
,Question 4
Which of the following is the "best" investment"?
a. 90-day Treasury bills yielding 2%
b. 5-year Treasury bonds yielding 3%
c. Stocks with expected returns of 7%
d. Depends on risk preferences of the investor
Correct Answer
D
Depends on risk preferences of the investor
Question 5
What metric converts FV to PV?
a. The interest rate
b. Multiples
c. The PE ratio
d. None of the above
Correct Answer
A
The interest rate
Page 3 of 63
, Question 6
If IRR is greater than WACC, an adopted project,
a. Decreases shareholder value
b. Does not affect shareholder value
c. Increases shareholder value
d. Cannot be determined
Correct Answer
C
Increases shareholder value
Question 7
If you are assessing a firm's ability to meet short term obligations, you would use which ratio?
a. Debt ratio
b. Quick ratio
c. Gross margin
d. Financial leverage
Correct Answer
B
Quick Ratio
Page 4 of 63
