WGU C214 Financial Management Final Exam – 200 Authentic Questions with
100% Verified Answers & Expert Rationales | A+ Graded
Questions 1–200
1. A totally domestic firm would worry about international trade because of:
A) Increased domestic demand
B) Competition from foreign firm imports to the U.S.
C) Lower production costs
D) Reduced regulatory oversight
Answer B: Competition from foreign firm imports to the U.S.
Rationale: Even domestic firms face competition from imported goods.
2. If a firm's ROE is greater than its ROA, what does that indicate?
,A) The firm has no debt
B) The firm uses debt financing wisely to increase profitability
C) The firm is unprofitable
D) The firm has excess cash
Answer B: The firm uses debt financing wisely to increase profitability
Rationale: ROE > ROA indicates financial leverage is positively contributing to
shareholder returns.
3. What term refers to corporate managers acting in their own interests
rather than the stockholders'?
A) Financial leverage
B) Agency costs
C) Moral hazard
D) Adverse selection
Answer B: Agency costs
Rationale: Agency costs arise when managers prioritize personal interests
over shareholder value.
4. How can a firm avoid agency costs?
A) Increase executive bonuses
B) Tie compensation to stock price
,C) Reduce dividends
D) Increase debt financing
Answer B: Tie compensation to stock price
Rationale: Aligning manager compensation with stock performance reduces
agency problems.
5. What is a "secured loan" or "secured bond"?
A) A loan without collateral
B) A loan backed by collateral pledged by the firm
C) A loan guaranteed by the government
D) A loan with variable interest
Answer B: A loan backed by collateral pledged by the firm
Rationale: Secured debt has specific assets pledged as collateral.
6. What is "free cash flow"?
A) Cash from financing activities
B) Cash flows from operations minus cash necessary for reinvestment in PP&E
C) Net income minus dividends
D) Cash from investing activities
Answer B: Cash flows from operations minus cash necessary for
reinvestment in PP&E
, Rationale: Free cash flow represents cash available for distribution after
required reinvestment.
7. Why would the Annual Percentage Yield (APY) be greater than the Annual
Percentage Rate (APR)?
A) APY ignores compounding
B) Interest payments are more frequent than annual
C) APR includes fees
D) APY is always lower
Answer B: Interest payments are more frequent than annual
Rationale: More frequent compounding increases the effective yield (APY)
above the stated rate (APR).
8. What is the purpose of the Securities and Exchange Commission (SEC)?
A) To set interest rates
B) To ensure U.S. investors are well informed
C) To regulate international trade
D) To establish accounting standards
Answer B: To ensure U.S. investors are well informed
Rationale: The SEC protects investors by requiring full and fair disclosure.
100% Verified Answers & Expert Rationales | A+ Graded
Questions 1–200
1. A totally domestic firm would worry about international trade because of:
A) Increased domestic demand
B) Competition from foreign firm imports to the U.S.
C) Lower production costs
D) Reduced regulatory oversight
Answer B: Competition from foreign firm imports to the U.S.
Rationale: Even domestic firms face competition from imported goods.
2. If a firm's ROE is greater than its ROA, what does that indicate?
,A) The firm has no debt
B) The firm uses debt financing wisely to increase profitability
C) The firm is unprofitable
D) The firm has excess cash
Answer B: The firm uses debt financing wisely to increase profitability
Rationale: ROE > ROA indicates financial leverage is positively contributing to
shareholder returns.
3. What term refers to corporate managers acting in their own interests
rather than the stockholders'?
A) Financial leverage
B) Agency costs
C) Moral hazard
D) Adverse selection
Answer B: Agency costs
Rationale: Agency costs arise when managers prioritize personal interests
over shareholder value.
4. How can a firm avoid agency costs?
A) Increase executive bonuses
B) Tie compensation to stock price
,C) Reduce dividends
D) Increase debt financing
Answer B: Tie compensation to stock price
Rationale: Aligning manager compensation with stock performance reduces
agency problems.
5. What is a "secured loan" or "secured bond"?
A) A loan without collateral
B) A loan backed by collateral pledged by the firm
C) A loan guaranteed by the government
D) A loan with variable interest
Answer B: A loan backed by collateral pledged by the firm
Rationale: Secured debt has specific assets pledged as collateral.
6. What is "free cash flow"?
A) Cash from financing activities
B) Cash flows from operations minus cash necessary for reinvestment in PP&E
C) Net income minus dividends
D) Cash from investing activities
Answer B: Cash flows from operations minus cash necessary for
reinvestment in PP&E
, Rationale: Free cash flow represents cash available for distribution after
required reinvestment.
7. Why would the Annual Percentage Yield (APY) be greater than the Annual
Percentage Rate (APR)?
A) APY ignores compounding
B) Interest payments are more frequent than annual
C) APR includes fees
D) APY is always lower
Answer B: Interest payments are more frequent than annual
Rationale: More frequent compounding increases the effective yield (APY)
above the stated rate (APR).
8. What is the purpose of the Securities and Exchange Commission (SEC)?
A) To set interest rates
B) To ensure U.S. investors are well informed
C) To regulate international trade
D) To establish accounting standards
Answer B: To ensure U.S. investors are well informed
Rationale: The SEC protects investors by requiring full and fair disclosure.
