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FINANCIAL MANAGEMENT C214 –
PRACTICE QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES 2026 Q&A | INSTANT
DOWNLOAD PDF
INTRODUCTION
WGU C214 – Financial Management focuses on practical financial analysis and decision-
making in the administration of corporate funds. WGU describes the course as covering capital
budgeting, working-capital management, cost of capital, financial planning, investment
opportunities, long-term financing, government regulations, and global influences. (Western
Governors University)
The course is designed for graduate business students who need to apply financial concepts to
realistic organizational decisions. Rather than relying only on definitions, effective preparation
requires the ability to interpret financial information, calculate financial measures, evaluate
investment alternatives, understand risk and return, and determine how financing decisions affect
firm value.
This practice bank contains 100 original, application-focused questions covering major C214
financial-management concepts. Questions incorporate numerical calculations, financial-
statement interpretation, capital budgeting, working capital, valuation, financing, and risk-
analysis scenarios. The explanations are designed to show not only why the selected answer is
appropriate but also why the alternatives do not fit the facts presented.
Use the questions as a study and self-assessment resource alongside WGU's current course
materials. They are original practice questions, not copies of WGU's objective assessment.
CONTENT AREA OVERVIEW
Content Area Questions Key Topics Weight
Financial Management & Financial objectives, agency issues, Study
1–12
Planning forecasting, cash planning emphasis
Financial Statement & Ratio Liquidity, profitability, leverage, Study
13–25
Analysis efficiency, DuPont analysis emphasis
Time Value of Money & PV, FV, annuities, perpetuities, bonds, Study
26–38
Valuation stocks emphasis
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Content Area Questions Key Topics Weight
Expected return, variance, Study
Risk & Return 39–50
diversification, beta, CAPM emphasis
Cash, receivables, inventory, operating Study
Working Capital Management 51–62
cycle, financing emphasis
NPV, IRR, payback, cash flows, Study
Capital Budgeting 63–77
replacement decisions emphasis
WACC, debt, preferred stock, equity, Study
Cost of Capital & Financing 78–89
capital structure emphasis
Global Finance, Regulation & Exchange rates, international risk, Study
90–100
Integrated Decisions governance, integrated analysis emphasis
WGU's published C214 description identifies capital budgeting, working capital, cost of capital,
financial planning, investment opportunities, long-term financing, government regulations, and
global influences as major course areas. WGU does not publish a public percentage weighting
for each C214 topic, so the table uses study emphasis rather than invented official percentages.
(Western Governors University)
QUESTIONS 1-100
FINANCIAL MANAGEMENT & PLANNING
Q1:
A company's management team is deciding whether to retain excess cash in a low-yield account
or distribute part of it to shareholders. The firm has no positive-NPV projects available and its
liquidity needs are already satisfied. Which financial-management principle most directly
supports evaluating the decision?
A) Maximizing accounting revenue
B) Maximizing shareholder value while considering the firm's financial constraints
C) Maximizing the number of assets held by the company
D) Minimizing every form of external financing
Rationale: B is correct because corporate financial management ultimately evaluates
decisions according to their effect on firm value while considering risk, liquidity, and other
constraints. A is incorrect because accounting revenue does not necessarily equal value
creation. C is incorrect because accumulating assets without productive returns can destroy
value. D is incorrect because avoiding financing altogether is not inherently optimal.
Q2:
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A CFO discovers that a proposed project has a positive accounting profit but a negative net
present value. What is the strongest reason the CFO should be concerned?
A) Accounting profit is never useful
B) The project may earn an accounting profit while failing to compensate investors for the
required return on capital
C) Positive accounting profit automatically means cash flow is negative
D) NPV ignores the time value of money
Rationale: B is correct because a project can report accounting income while still failing to
create economic value when discounted cash flows are below the required investment. A is
incorrect because accounting information remains useful. C is incorrect because accounting
profit and cash flow are different measures. D is incorrect because NPV explicitly
incorporates the time value of money.
Q3:
A company increases sales rapidly by offering customers much longer payment terms. Sales rise
20%, but cash collections fall relative to revenue. Which financial-management concern should
receive the greatest attention?
A) Increased accounts-receivable investment and collection risk
B) Reduced depreciation expense
C) Increased inventory obsolescence only
D) Reduced equity financing automatically
Rationale: A is correct because longer customer payment terms generally increase accounts
receivable and tie up cash while potentially increasing credit risk. B is unrelated. C may occur
but is not the primary issue described. D does not follow from extending customer credit.
Q4:
A manager rejects a project because it would reduce the department's reported return on assets
even though its expected return exceeds the firm's cost of capital. What problem does this
decision illustrate?
A) A conflict between an internal performance metric and value creation
B) A guaranteed liquidity crisis
C) An accounting fraud
D) A reduction in the firm's tax rate
Rationale: A is correct because divisional performance measures can sometimes encourage
managers to reject projects that create shareholder value. B, C, and D are not supported by the
scenario.
Q5:
, 4|Page
A company forecasts strong revenue growth but expects cash shortages because customers pay
slowly while suppliers require payment quickly. Which planning tool would be most useful?
A) Cash budget
B) Depreciation schedule only
C) Stock dividend declaration
D) Historical income statement only
Rationale: A is correct because a cash budget projects cash inflows, outflows, and financing
needs over a period. B does not directly forecast liquidity. C is a financing decision rather than
a forecasting tool. D reports historical performance and does not provide the same forward-
looking cash analysis.
Q6:
A CFO is preparing a financial plan and identifies that a projected increase in sales will require
additional inventory and receivables. What is the most appropriate implication?
A) Growth can create an external financing requirement even when profits increase
B) Higher sales always reduce financing requirements
C) Inventory and receivables never affect cash
D) Profits automatically equal available cash
Rationale: A is correct because growth can consume working capital and create financing
needs. B is incorrect because rapid growth can require significant investment. C is incorrect
because both assets tie up cash. D confuses accounting profit with cash availability.
Q7:
A firm has two mutually exclusive projects. Project A has the higher accounting return, while
Project B has the higher NPV. If the objective is to increase firm value, which project should
receive primary consideration?
A) Project A
B) Project B
C) Whichever project has the longer useful life
D) Whichever project has the highest revenue
Rationale: B is correct because NPV directly measures the estimated increase in value created
by a project when the cash flows and required return are appropriately specified. A, C, and D
do not necessarily indicate value creation.
Q8:
FINANCIAL MANAGEMENT C214 –
PRACTICE QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES 2026 Q&A | INSTANT
DOWNLOAD PDF
INTRODUCTION
WGU C214 – Financial Management focuses on practical financial analysis and decision-
making in the administration of corporate funds. WGU describes the course as covering capital
budgeting, working-capital management, cost of capital, financial planning, investment
opportunities, long-term financing, government regulations, and global influences. (Western
Governors University)
The course is designed for graduate business students who need to apply financial concepts to
realistic organizational decisions. Rather than relying only on definitions, effective preparation
requires the ability to interpret financial information, calculate financial measures, evaluate
investment alternatives, understand risk and return, and determine how financing decisions affect
firm value.
This practice bank contains 100 original, application-focused questions covering major C214
financial-management concepts. Questions incorporate numerical calculations, financial-
statement interpretation, capital budgeting, working capital, valuation, financing, and risk-
analysis scenarios. The explanations are designed to show not only why the selected answer is
appropriate but also why the alternatives do not fit the facts presented.
Use the questions as a study and self-assessment resource alongside WGU's current course
materials. They are original practice questions, not copies of WGU's objective assessment.
CONTENT AREA OVERVIEW
Content Area Questions Key Topics Weight
Financial Management & Financial objectives, agency issues, Study
1–12
Planning forecasting, cash planning emphasis
Financial Statement & Ratio Liquidity, profitability, leverage, Study
13–25
Analysis efficiency, DuPont analysis emphasis
Time Value of Money & PV, FV, annuities, perpetuities, bonds, Study
26–38
Valuation stocks emphasis
,2|Page
Content Area Questions Key Topics Weight
Expected return, variance, Study
Risk & Return 39–50
diversification, beta, CAPM emphasis
Cash, receivables, inventory, operating Study
Working Capital Management 51–62
cycle, financing emphasis
NPV, IRR, payback, cash flows, Study
Capital Budgeting 63–77
replacement decisions emphasis
WACC, debt, preferred stock, equity, Study
Cost of Capital & Financing 78–89
capital structure emphasis
Global Finance, Regulation & Exchange rates, international risk, Study
90–100
Integrated Decisions governance, integrated analysis emphasis
WGU's published C214 description identifies capital budgeting, working capital, cost of capital,
financial planning, investment opportunities, long-term financing, government regulations, and
global influences as major course areas. WGU does not publish a public percentage weighting
for each C214 topic, so the table uses study emphasis rather than invented official percentages.
(Western Governors University)
QUESTIONS 1-100
FINANCIAL MANAGEMENT & PLANNING
Q1:
A company's management team is deciding whether to retain excess cash in a low-yield account
or distribute part of it to shareholders. The firm has no positive-NPV projects available and its
liquidity needs are already satisfied. Which financial-management principle most directly
supports evaluating the decision?
A) Maximizing accounting revenue
B) Maximizing shareholder value while considering the firm's financial constraints
C) Maximizing the number of assets held by the company
D) Minimizing every form of external financing
Rationale: B is correct because corporate financial management ultimately evaluates
decisions according to their effect on firm value while considering risk, liquidity, and other
constraints. A is incorrect because accounting revenue does not necessarily equal value
creation. C is incorrect because accumulating assets without productive returns can destroy
value. D is incorrect because avoiding financing altogether is not inherently optimal.
Q2:
,3|Page
A CFO discovers that a proposed project has a positive accounting profit but a negative net
present value. What is the strongest reason the CFO should be concerned?
A) Accounting profit is never useful
B) The project may earn an accounting profit while failing to compensate investors for the
required return on capital
C) Positive accounting profit automatically means cash flow is negative
D) NPV ignores the time value of money
Rationale: B is correct because a project can report accounting income while still failing to
create economic value when discounted cash flows are below the required investment. A is
incorrect because accounting information remains useful. C is incorrect because accounting
profit and cash flow are different measures. D is incorrect because NPV explicitly
incorporates the time value of money.
Q3:
A company increases sales rapidly by offering customers much longer payment terms. Sales rise
20%, but cash collections fall relative to revenue. Which financial-management concern should
receive the greatest attention?
A) Increased accounts-receivable investment and collection risk
B) Reduced depreciation expense
C) Increased inventory obsolescence only
D) Reduced equity financing automatically
Rationale: A is correct because longer customer payment terms generally increase accounts
receivable and tie up cash while potentially increasing credit risk. B is unrelated. C may occur
but is not the primary issue described. D does not follow from extending customer credit.
Q4:
A manager rejects a project because it would reduce the department's reported return on assets
even though its expected return exceeds the firm's cost of capital. What problem does this
decision illustrate?
A) A conflict between an internal performance metric and value creation
B) A guaranteed liquidity crisis
C) An accounting fraud
D) A reduction in the firm's tax rate
Rationale: A is correct because divisional performance measures can sometimes encourage
managers to reject projects that create shareholder value. B, C, and D are not supported by the
scenario.
Q5:
, 4|Page
A company forecasts strong revenue growth but expects cash shortages because customers pay
slowly while suppliers require payment quickly. Which planning tool would be most useful?
A) Cash budget
B) Depreciation schedule only
C) Stock dividend declaration
D) Historical income statement only
Rationale: A is correct because a cash budget projects cash inflows, outflows, and financing
needs over a period. B does not directly forecast liquidity. C is a financing decision rather than
a forecasting tool. D reports historical performance and does not provide the same forward-
looking cash analysis.
Q6:
A CFO is preparing a financial plan and identifies that a projected increase in sales will require
additional inventory and receivables. What is the most appropriate implication?
A) Growth can create an external financing requirement even when profits increase
B) Higher sales always reduce financing requirements
C) Inventory and receivables never affect cash
D) Profits automatically equal available cash
Rationale: A is correct because growth can consume working capital and create financing
needs. B is incorrect because rapid growth can require significant investment. C is incorrect
because both assets tie up cash. D confuses accounting profit with cash availability.
Q7:
A firm has two mutually exclusive projects. Project A has the higher accounting return, while
Project B has the higher NPV. If the objective is to increase firm value, which project should
receive primary consideration?
A) Project A
B) Project B
C) Whichever project has the longer useful life
D) Whichever project has the highest revenue
Rationale: B is correct because NPV directly measures the estimated increase in value created
by a project when the cash flows and required return are appropriately specified. A, C, and D
do not necessarily indicate value creation.
Q8:
