WGU C214 Finance questions with verified answers
1. Which of the following is NOT discussed in this section as a potential cost of
doing international business. Ans✓✓✓ NAFTA
2 types of Stocks - Ans✓✓✓ Common Stock and Preferred Stock (HYBRID, has
more advantages than common stock)
-Shares of a company that are sold to raise money
A basic equation for the balance sheet is_______. Ans✓✓✓ Equity = Assets -
Liabilities
A bond pays $27.50 semiannually, matures in nine years, and is currently priced at
$1,090.What is the yield to maturity for this bond? Ans✓✓✓ 4.28%
A bond that matures in 30 months is sold at a premium.What is the yield to
maturity (YTM)? Ans✓✓✓ Lower than the coupon rate
A broker is considering buying a dividend-paying stock. The dividend will be paid
at the end of the year. The analyst consensus is the stock will be worth $36 in one
year. The company pays a $2.25 annual dividend. (The ex-dividend date is not a
consideration; the broker will receive the full $2.25.) The broker expects a 12%
rate of return.What is the highest price this broker should be willing to pay for
this stock? Ans✓✓✓ $34.15
A broker is considering purchasing common stock in a company that has average
but consistent operating performance.Which factor should lead this broker to
purchase shares in this company? Ans✓✓✓ The current price of the stock is 25%
below its intrinsic value.
,A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt
of 6%, a cost of preferred equity of 8%, and a marginal tax rate of 34%. The
current market value of the company is $150 million, with $75 million common
equity, $50 million debt, and $25 million preferred equity.What is this company's
weighted average cost of capital? Ans✓✓✓ 9.7%
A company has a market value of $500 million. It has a market value of equity of
$200 million, a market value of long-term debt of $150 million, and a market
value of short-term debt of $150 million.The cost of equity is 12%, the cost of
long-term debt is 8%, and the cost of short-term debt is 6%. The marginal tax rate
is 35%.What is the weighted average pre-tax cost of capital (WACC) for this
company? Ans✓✓✓ 9.00%
A company is preparing a pro forma balance sheet. The company forecast $10
million in projected sales. The projected cash needed 6% of sales, accounts
receivable are 19% of sales, and PP&E are 50% of sales. Accounts payable have
been 12% of sales, historically.Shareholders' equity is $1.5 million. Pro forma
income is $3.6 million. The company has no long-term debt.What is the
discretionary financing needed? Ans✓✓✓ $1.2 million
A company issues bonds at a market price of $925. The face value is $1,000. The
bonds mature in 10 years, and the coupon rate is 6% compounded
semiannually.What is the yield to maturity (YTM) on this company's bonds?
Ans✓✓✓ 7.06%
A company reported an increase in accounts receivable of $5,000 during the
recent period. Half of this amount is expected to be collected next period.How
will this change in accounts receivable affect the cash flows from the operating
activities section? Ans✓✓✓ The change will decrease cash flows from operations
by $5,000.
,A company would like to invest in a capital budget project that will be worth
$500,000 in 40 years.How much should this company invest today, assuming an
average inflation rate of 2% and a 10% annual return? Ans✓✓✓ $24,393
A company's year-end balance sheet for 2013 shows the following:
Accounts Receivable: $900
Inventory: $1,200
Fixed Assets: $1,000
Accounts Payable: $1,300
Sales: $4,000
Salaries Expense: $275
What is its fixed asset turnover ratio? Ans✓✓✓ 4.0
A corporation established its projected sales at $210 million. It is using its current
year balance sheet as a basis for creating a pro forma balance sheet. It estimates
cash will be 7% of projected sales, accounts receivable will be 19% of projected
sales, and property, plant, and equipment (PP&E) will be 55% of projected sales.
Accounts payable are estimated to be 12% of projected sales. Owners' equity is
$34 million. Long-term debt is $90 million. Additionally, the firm raised $12.9
million of equity capital.
What is the amount of discretionary financing needed? Ans✓✓✓ $8 million
A country's monetary authority intervenes to maintain a constant value of the
country's currency Ans✓✓✓ Managed
, A financial product in which banks bundle international stocks so they can be sold
on US exchanges in US dollars is termed a __________. Ans✓✓✓ ADR
A firm has a ROE (return on equity) of 0.27, and the industry average ROE is
0.24.Which conclusion should an analyst draw when comparing this firm to the
industry? Ans✓✓✓ The firm is generating higher returns to owners than the
industry.
A firm purchased raw materials on June1st on credit, paid for the materials on
June 10th, finished producing and sold the finished product on June 20th, and
received payment on June 27th. How many days was the operating cycle?
Ans✓✓✓ 27
A high-quality customer just purchased $500,000 worth of product from your
company. The contract calls for immediate delivery of the product with a cash
payment of $300,000 today and $200,000 to be paid in 60 days. The expense
associated with the product is $300,000, of which $100,000 has not been paid to
your supplier. Under an accrual based accounting system, you will most likely
report which of these? Ans✓✓✓ Revenues of 500,000 and expenses of 300,000
A machine will reach the end of its useful life in year 5. The realizable salvage
value is expected to be $50,000 with a book value of zero. The company's
marginal tax rate is 34%.What is the tax implication on the sale of this new
machine at year 5? Ans✓✓✓ Tax liabilities of $17,000
A person buys shares of a company at $45 and recently paid a $2 annual dividend
that is expected to grow by 10% per year.What is the expected return per year?
Ans✓✓✓ 14.9%
1. Which of the following is NOT discussed in this section as a potential cost of
doing international business. Ans✓✓✓ NAFTA
2 types of Stocks - Ans✓✓✓ Common Stock and Preferred Stock (HYBRID, has
more advantages than common stock)
-Shares of a company that are sold to raise money
A basic equation for the balance sheet is_______. Ans✓✓✓ Equity = Assets -
Liabilities
A bond pays $27.50 semiannually, matures in nine years, and is currently priced at
$1,090.What is the yield to maturity for this bond? Ans✓✓✓ 4.28%
A bond that matures in 30 months is sold at a premium.What is the yield to
maturity (YTM)? Ans✓✓✓ Lower than the coupon rate
A broker is considering buying a dividend-paying stock. The dividend will be paid
at the end of the year. The analyst consensus is the stock will be worth $36 in one
year. The company pays a $2.25 annual dividend. (The ex-dividend date is not a
consideration; the broker will receive the full $2.25.) The broker expects a 12%
rate of return.What is the highest price this broker should be willing to pay for
this stock? Ans✓✓✓ $34.15
A broker is considering purchasing common stock in a company that has average
but consistent operating performance.Which factor should lead this broker to
purchase shares in this company? Ans✓✓✓ The current price of the stock is 25%
below its intrinsic value.
,A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt
of 6%, a cost of preferred equity of 8%, and a marginal tax rate of 34%. The
current market value of the company is $150 million, with $75 million common
equity, $50 million debt, and $25 million preferred equity.What is this company's
weighted average cost of capital? Ans✓✓✓ 9.7%
A company has a market value of $500 million. It has a market value of equity of
$200 million, a market value of long-term debt of $150 million, and a market
value of short-term debt of $150 million.The cost of equity is 12%, the cost of
long-term debt is 8%, and the cost of short-term debt is 6%. The marginal tax rate
is 35%.What is the weighted average pre-tax cost of capital (WACC) for this
company? Ans✓✓✓ 9.00%
A company is preparing a pro forma balance sheet. The company forecast $10
million in projected sales. The projected cash needed 6% of sales, accounts
receivable are 19% of sales, and PP&E are 50% of sales. Accounts payable have
been 12% of sales, historically.Shareholders' equity is $1.5 million. Pro forma
income is $3.6 million. The company has no long-term debt.What is the
discretionary financing needed? Ans✓✓✓ $1.2 million
A company issues bonds at a market price of $925. The face value is $1,000. The
bonds mature in 10 years, and the coupon rate is 6% compounded
semiannually.What is the yield to maturity (YTM) on this company's bonds?
Ans✓✓✓ 7.06%
A company reported an increase in accounts receivable of $5,000 during the
recent period. Half of this amount is expected to be collected next period.How
will this change in accounts receivable affect the cash flows from the operating
activities section? Ans✓✓✓ The change will decrease cash flows from operations
by $5,000.
,A company would like to invest in a capital budget project that will be worth
$500,000 in 40 years.How much should this company invest today, assuming an
average inflation rate of 2% and a 10% annual return? Ans✓✓✓ $24,393
A company's year-end balance sheet for 2013 shows the following:
Accounts Receivable: $900
Inventory: $1,200
Fixed Assets: $1,000
Accounts Payable: $1,300
Sales: $4,000
Salaries Expense: $275
What is its fixed asset turnover ratio? Ans✓✓✓ 4.0
A corporation established its projected sales at $210 million. It is using its current
year balance sheet as a basis for creating a pro forma balance sheet. It estimates
cash will be 7% of projected sales, accounts receivable will be 19% of projected
sales, and property, plant, and equipment (PP&E) will be 55% of projected sales.
Accounts payable are estimated to be 12% of projected sales. Owners' equity is
$34 million. Long-term debt is $90 million. Additionally, the firm raised $12.9
million of equity capital.
What is the amount of discretionary financing needed? Ans✓✓✓ $8 million
A country's monetary authority intervenes to maintain a constant value of the
country's currency Ans✓✓✓ Managed
, A financial product in which banks bundle international stocks so they can be sold
on US exchanges in US dollars is termed a __________. Ans✓✓✓ ADR
A firm has a ROE (return on equity) of 0.27, and the industry average ROE is
0.24.Which conclusion should an analyst draw when comparing this firm to the
industry? Ans✓✓✓ The firm is generating higher returns to owners than the
industry.
A firm purchased raw materials on June1st on credit, paid for the materials on
June 10th, finished producing and sold the finished product on June 20th, and
received payment on June 27th. How many days was the operating cycle?
Ans✓✓✓ 27
A high-quality customer just purchased $500,000 worth of product from your
company. The contract calls for immediate delivery of the product with a cash
payment of $300,000 today and $200,000 to be paid in 60 days. The expense
associated with the product is $300,000, of which $100,000 has not been paid to
your supplier. Under an accrual based accounting system, you will most likely
report which of these? Ans✓✓✓ Revenues of 500,000 and expenses of 300,000
A machine will reach the end of its useful life in year 5. The realizable salvage
value is expected to be $50,000 with a book value of zero. The company's
marginal tax rate is 34%.What is the tax implication on the sale of this new
machine at year 5? Ans✓✓✓ Tax liabilities of $17,000
A person buys shares of a company at $45 and recently paid a $2 annual dividend
that is expected to grow by 10% per year.What is the expected return per year?
Ans✓✓✓ 14.9%
