WGU C214 FINANCIAL MANAGEMENT UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. Initial Outlay
Answer:
The total dollar amount to begin a project.
Question:
2. Cost of Equity
Answer:
How much it costs a firm (in percentage terms) to use equity financing. From the investor's perspective, it
is what they require given the riskiness/opportunity cost of the company. From the companies perspective,
it is the same rate, but it is what it "costs" to attract those potential investors. It is the return they must give
investors for them to invest with their company.
Question:
3. American Depository Receipts (ADRs)
Answer:
Certificates issued by U.S. banks and traded on U.S. markets but represent shares of foreign stocks
Question:
4. Degree of Operating Leverage (DOL)
Answer:
Business risk examines the %change in operating cash flow relative to the %change in quantity sold
Question:
5. Degree of Financial Leverage (DFL)
Answer:
Financial Risk examines %change earnings per share relative to %change in OI (EBIT)
Question:
6. National Banking Act of 1863
Answer:
Federal regulation to deal with "wildcat banking" (state-mandated remote and inaccessible banks not
federally regulated)
Question:
7. Federal Reserve Act of 1913
Answer:
Federal regulation to deal with bank runs and recessions; gave the 12 Federal Reserve banks the ability to
print money to ensure economic stability. The Federal Reserve System created the dual mandate to
maximize employment and keep inflation low.
, Question:
8. Form S-1
Answer:
Original prospectus (registration statement) filed with the SEC by firms prior to the sale of new securities
to the public.
Question:
9. Net Present Value (NPV)
Answer:
Capital budgeting with TVM to analyze the projected profitability. Difference between the present value of
cash inflows and the present value of cash outflows over a period of time.
Question:
10. Internal Rate of Return (IRR)
Answer:
Capital budgeting with TVM to evaluate the attractiveness of a project or investment. The discount rate
that forces a project's NPV to equal zero.
Question:
11. Sarbanes-Oxley Act of 2002
Answer:
Federal regulations resulting from corporate frauds such as Enron and designed to protect investors from
fraud.
Question:
12. Securities Act of 1933
Answer:
Federal regulation as a result of the Great Depression. Requires firms to register with the SEC to sell
public securities.
Question:
13. Bank Holding Company Act of 1956
Answer:
Federal regulation designed to protect the banking industry from competition.
Question:
14. Gram-Leach-Bliley Act of 1999
Answer:
Repeals the last vestiges of the Glass-Stegall Act of 1933 and created new financial holding companies
allowed to engage in underwriting, selling insurance and securities and conducting both commercial and
merchant banking
Question:
15. Volcker Rule
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. Initial Outlay
Answer:
The total dollar amount to begin a project.
Question:
2. Cost of Equity
Answer:
How much it costs a firm (in percentage terms) to use equity financing. From the investor's perspective, it
is what they require given the riskiness/opportunity cost of the company. From the companies perspective,
it is the same rate, but it is what it "costs" to attract those potential investors. It is the return they must give
investors for them to invest with their company.
Question:
3. American Depository Receipts (ADRs)
Answer:
Certificates issued by U.S. banks and traded on U.S. markets but represent shares of foreign stocks
Question:
4. Degree of Operating Leverage (DOL)
Answer:
Business risk examines the %change in operating cash flow relative to the %change in quantity sold
Question:
5. Degree of Financial Leverage (DFL)
Answer:
Financial Risk examines %change earnings per share relative to %change in OI (EBIT)
Question:
6. National Banking Act of 1863
Answer:
Federal regulation to deal with "wildcat banking" (state-mandated remote and inaccessible banks not
federally regulated)
Question:
7. Federal Reserve Act of 1913
Answer:
Federal regulation to deal with bank runs and recessions; gave the 12 Federal Reserve banks the ability to
print money to ensure economic stability. The Federal Reserve System created the dual mandate to
maximize employment and keep inflation low.
, Question:
8. Form S-1
Answer:
Original prospectus (registration statement) filed with the SEC by firms prior to the sale of new securities
to the public.
Question:
9. Net Present Value (NPV)
Answer:
Capital budgeting with TVM to analyze the projected profitability. Difference between the present value of
cash inflows and the present value of cash outflows over a period of time.
Question:
10. Internal Rate of Return (IRR)
Answer:
Capital budgeting with TVM to evaluate the attractiveness of a project or investment. The discount rate
that forces a project's NPV to equal zero.
Question:
11. Sarbanes-Oxley Act of 2002
Answer:
Federal regulations resulting from corporate frauds such as Enron and designed to protect investors from
fraud.
Question:
12. Securities Act of 1933
Answer:
Federal regulation as a result of the Great Depression. Requires firms to register with the SEC to sell
public securities.
Question:
13. Bank Holding Company Act of 1956
Answer:
Federal regulation designed to protect the banking industry from competition.
Question:
14. Gram-Leach-Bliley Act of 1999
Answer:
Repeals the last vestiges of the Glass-Stegall Act of 1933 and created new financial holding companies
allowed to engage in underwriting, selling insurance and securities and conducting both commercial and
merchant banking
Question:
15. Volcker Rule
