WGU Financial Management C214

WGU Financial Management C214 Trading on the NYSE is executed without a specialist (i.e. a market maker). True or False? - CORRECT ANSWERS False Stocks and Bonds are two types of financial instruments. True or False? - CORRECT ANSWERS True When revenue is matched with cost of sales in an Income statement it is called? - CORRECT ANSWERS Matching principle Basic balance sheet equation is what? - CORRECT ANSWERS Equity = Assets - Liabilities Why is the balance sheet known as the permanent statement? - CORRECT ANSWERS Because the other statements are reset at the end of the fiscal year. How do you calculate the change in retained earnings? - CORRECT ANSWERS Net income-dividends Sales - Cost of Sales - other expenses = - CORRECT ANSWERS Operating Income or EBiT Name four accounts that are part of total assets? - CORRECT ANSWERS Cash, Accounts receivable, inventory, long term assets Name three accounts that are part of total liabilities? - CORRECT ANSWERS Bonds, accounts payable and mortgage Name four accounts that are part of current assets? - CORRECT ANSWERS Inventory, cash, accounts receivable and short term investments. Name three accounts that are only included in cash flow from financing? - CORRECT ANSWERS Common stock, dividends paid and bonds payable Define the statement of cash flows? - CORRECT ANSWERS Calculated for the same period of time as the incomes statement is calculated based on the income statement and changes in the balance sheet is one of the three basic accounting statements. When fixed assets increase what happens to cash? - CORRECT ANSWERS Cash will decrease What is the purpose of the statement of cash flows? - CORRECT ANSWERS Explains the change in cash over the course of the specified time frame. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? - CORRECT ANSWERS The firm has too little inventory resulting in lost sales or stock-outs. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? - CORRECT ANSWERS Higher The Operating Income Return on Investment (OIROI) uses what elements on the income statement? - CORRECT ANSWERS EBIT and total assets Why would a company be interested in the Total Asset Turnover (TAT) ratio? - CORRECT ANSWERS To see how efficient are at producing sales What annual interest will be paid for a zero coupon bond? - CORRECT ANSWERS 0% What is the most significant characteristic of subordinated debt? - CORRECT ANSWERS Senior debt is paid off first If a company wants to increase its debt capital, how will they raise the funds? - CORRECT ANSWERS Sell bonds What is the lowest level investment bond - CORRECT ANSWERS BBB What can cause the bond price to fluctuate? - CORRECT ANSWERS A change in the bond rating, a change in the financial condition, general change in interest rates. What does a company use as security for a bond? - CORRECT ANSWERS Credit worthiness Under the efficient market hypothesis, what will companies endeavor to do? - CORRECT ANSWERS Maximize profits for a given level of risk What does the beta coefficient represent? - CORRECT ANSWERS It is a statistically derived measure of volatility. If an investor knows the idiosyncratic risk, the investor knows the? - CORRECT ANSWERS Beta Coefficient Why is the depreciation expense taken out of the net income calculation, yet added back at the end? - CORRECT ANSWERS Because depreciation expense is tax deductible. Why would we reject a project based on NPV? - CORRECT ANSWERS The NPV is a