WGU C214 OA Exam Questions With Answers Latest 2023/2024 (GRADED A+)

What are two basic types of financial instruments? Stocks and Bonds 3. What are secondary markets? Secondary financial markets are where securities are traded after the initial offering. 4. What do cash flows from operating activities report? Operating – day to day operations Investing – Property, plant, equipment, long term items Financing – debt and equity changes 5. What does the statement of cash flows report? Cash inflow and cash outflow of business for period of time 6. Write the equation that links the income statement to the balance sheet? New Re= Old RE + Net Income – dividends 7. Net income 2,000 Depreciation 500 Change in operating assets 400 Change in PPE 1,000 Change on long term liabilities 600 Dividends paid 100 What is the firm’s cash flow from financing activities? CFF Increase in debt 600 + (no change in stock) 0 – (dividends paid) 100 = 500 8. Describe an income statement? An income statement is a financial statement that shows you how profitable your business was over a given reporting period. It shows your revenue, minus your expenses and losses 9. What item is included in the income statement and not included in the statement of cash flows. Depreciation 10. A company sold goods in 2016 for $30,000 and collected the cash in 2017. In 2016, the company incurred and paid $20,000 in expenses related to the goods sold. How much income should the company report in 2016 under the accrual basis of accounting? 30,000-20,000= $10,000 11. 11. EBIT: $1,000,000 Depreciation: $30,000 Changein working capital($5,000) Net capital expenditures: $10,000 Tax rate: 40% What is the company’s free cash flow? 1,000,000*(1-.40) + 30,000) – (-5,000) – 10,000 = 625,000 12. Define Free Cash Flow? Represents the cash available for the company to repay creditors or pay dividends and interest to investor 13. A company reported an increase in accounts payable of $4,000 during the recent period. Half of this amount is expected to be paid next period. What is the impact on the cash flow from operating activities? Increase of $4000 14. An architect will receive $10,000 per year (at the end of the year) PMT for 10 years. The annual interest earned on the investment is 6%. What is the present value of the architect’s investment? 10,000 PMT (at the end of each year) 6 I/Y 10 N CPT PV = -5 15. An employee wants to retire 20 years from today and would like to have an annual income of $300,000 per year for 10 years starting in exactly 20 years. The discount rate is 6%. What is the present value, today? Future PMT = 300,000 N = 10 I/Y = 6 PV = 2,208,026.115 Present FV = 2,208,026.115 N = 20 I/Y = 6 PV = 688,472,9797 16. A person won $75,000 in a lottery and invests this money for 2 years and 3 months at an interest rate of 6% simple interest. How much will the person have in principal and interest at the end of the period? 10,125.000 17. A company shows the following financial data: Accounts receivable: $300 Inventory: $700 Fixed assets: $900 Accounts payable: $500 Long-term debt: $1000 What is the current ratio? (300+700)/500 = 2.0 18. What is an example of an estimate used in recording transactions? Deciding the salvage value of a fixed asset when calculating depreciation expense 19. Give an example of accounting difference? The firms use different inventory methods 20. Which securities are issued by the U.S. federal government are taxable at the federal level? Treasury bonds 21. When will annual percentage yield (APY) be greater than the annual percentage rate (APR)? Compound interest more often than once a year 22. What is the intrinsic value of a stock? Present value 23. What is the current price of the bond, if the required rate of return on a bond is the same as the coupon rate? Equal to the par value of the bond 24. Which security includes the right to vote for a board of directors? Common Stock 25. The market rate I/Y is 5%. The face value of the bond is $1000, the coupon rate PMT is 3% with annual compounding, and the bond matures in 10 N years. What is the PV value of the bond? FV 1000 PMT 1000*3% = 30 N 10 I/Y 5 CPT PV = 845.5653 26. If the coupon rate is higher than the market rate of return, at what price will the bond sell? At a Premium 27. If the coupon rate on a bond is 8% and the bond is selling at a discount, Will the yield to maturity on the bond be higher than or lower than 8%? Higher 28. The market rate is I/Y 5%. The face value of the bond is FV $1000, the coupon rate is PMT 3% * FV with annual compounding, and the bond matures in 10 N years. What is the PV value of the bond? FV 1000 PMT 1000*3% = 30 N 10 I/Y 5 CPT PV = 845.5653 29. A company issues bonds at a market price of PV - $1,200. The face value is FV $1,000. The bonds mature in N 10 years and the coupon rate is PMT 8% * FV compounded annually. What is the I/Y yield to maturity on the company’s bonds? PV -1200 FV 1000 PMT 100* 8% = 80 N 10 CPT I/Y = 5.3639 30. A loan carries a 11.5% annual percentage rate (APR) and compounds daily. What is the APY? APY = (1+(APR/n)] ^n -1 “n is compounding periods” 1+(11.5/1) 12.1853 31. A broker purchases a stock that pays PMT a $2.15 annual dividend at a price of - PV $18.00. The broker expects a 15% rate of return. What is the total actual return I/Y if the broker sells the stock after N one year for FV $20 Time value of money question NOT GROWTH PMT 2.15 PV -18.00 N 1 FV 20 CPT I/Y = 23.0556 32. A company just paid a $2 dividend per share of stock, which is expected to grow 10% annually. A broker’s required return is 15%. What is the highest price the broker should be willing to pay for one share of the company today? Expected Dividend = Recent dividend * (1 + Growth Rate) Expected Dividend = 2* (1 + .10) = 2*1.10 = 2.20 Price = Expected Dividend / (required return - Growth Rate) Price= 2.20 / (.15 - .10) = 2.20 / .05 = 44.00 33. How is the expected return from the CAPM model used to make financial decisions? It’s used to discount the expected dividends and capital appreciation of the stock over the expected holding period. 34. Define par value of a bond? AMOUNT OF PAYABLE OF MATURITY OF BOND 35. What is the benefit of the Gordon growth model over the CAPM model? It is the most commonly used model to calculate share price and is therefore the easiest to understand. 36. In 2016, the ending retained earnings was $2,000,000. In 2017, the forecasted net income is $3,000,000 with a 30% dividend payout ratio. What is the forecasted retained earnings for year 2017? 2,000,000+3,000,000 = 5,000,0000 3,000,000*30% = 900,000 5,000,000- 900,000 = 4,100,000