WGU C214 FINANCIAL MANAGEMENT
OA STUDY SET CORRECT QUESTIONS
& ANSWERS|| LATEST UPDATE 2025
Trading on the NYSE is executed without a specialist (i.e. a market maker). True or
False? - ANSWER False
Stocks and Bonds are two types of financial instruments. True or False? - ANSWER
True
When revenue is matched with cost of sales in an Income statement it is called? -
ANSWER Matching principle
Basic balance sheet equation is what? - ANSWER Equity = Assets - Liabilities
Why is the balance sheet known as the permanent statement? - ANSWER Because the
other statements are reset at the end of the fiscal year.
The Operating Income Return on Investment (OIROI) uses what elements on the
income statement? - ANSWER EBIT and total assets
Why would a company be interested in the Total Asset Turnover (TAT) ratio? -
ANSWER To see how efficient are at producing sales
What annual interest will be paid for a zero coupon bond? - ANSWER 0%
What is the most significant characteristic of subordinated debt? - ANSWER Senior debt
is paid off first
If a company wants to increase its debt capital, how will they raise the funds? -
ANSWER Sell bonds
What is the lowest level investment bond - ANSWER BBB
What can cause the bond price to fluctuate? - ANSWER 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? - ANSWER Credit worthiness
Under the efficient market hypothesis, what will companies endeavor to do? - ANSWER
Maximize profits for a given level of risk
, What does the beta coefficient represent? - ANSWER It is a statistically derived
measure of volatility.
If an investor knows the idiosyncratic risk, the investor knows the? - ANSWER Beta
Coefficient
Why is the depreciation expense taken out of the net income calculation, yet added
back at the end? - ANSWER Because depreciation expense is tax deductible.
Why would we reject a project based on NPV? - ANSWER The NPV is a negative
number
Why would we reject a project based on IRR? - ANSWER The discount rate is higher
than the IRR
What are two key elements of differential cash flow? - ANSWER Depreciation expense
and net income
Why is the NPV preferred over the IRR? - ANSWER It measures the dollar value and is
more reliable.
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in profitability? -
ANSWER Higher leverage leads to higher profitability for a given sale level.
What does the degree of financial leverage indicate? - ANSWER The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about the
firms risk profile? - ANSWER Financial leverage also means that more financing is done
through debt, not equity. Higher profits to shareholders.
What is the cash cycle? - ANSWER The amount of time to regenerate cash.
Why is float important to understand? - ANSWER To time cash expenditures
What should a company do to manage its working capital? - ANSWER Collect quickly
and pay slowly
Name what characterizes increased collection float? - ANSWER Increased float
indicates slower processing time.
In regards to Accounts Payable Balances, what is a good policy? - ANSWER Paying off
A/P on the last day due is a good policy.
What would be a good source of information to determine replacement cost? -
ANSWER Building Appraisal
OA STUDY SET CORRECT QUESTIONS
& ANSWERS|| LATEST UPDATE 2025
Trading on the NYSE is executed without a specialist (i.e. a market maker). True or
False? - ANSWER False
Stocks and Bonds are two types of financial instruments. True or False? - ANSWER
True
When revenue is matched with cost of sales in an Income statement it is called? -
ANSWER Matching principle
Basic balance sheet equation is what? - ANSWER Equity = Assets - Liabilities
Why is the balance sheet known as the permanent statement? - ANSWER Because the
other statements are reset at the end of the fiscal year.
The Operating Income Return on Investment (OIROI) uses what elements on the
income statement? - ANSWER EBIT and total assets
Why would a company be interested in the Total Asset Turnover (TAT) ratio? -
ANSWER To see how efficient are at producing sales
What annual interest will be paid for a zero coupon bond? - ANSWER 0%
What is the most significant characteristic of subordinated debt? - ANSWER Senior debt
is paid off first
If a company wants to increase its debt capital, how will they raise the funds? -
ANSWER Sell bonds
What is the lowest level investment bond - ANSWER BBB
What can cause the bond price to fluctuate? - ANSWER 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? - ANSWER Credit worthiness
Under the efficient market hypothesis, what will companies endeavor to do? - ANSWER
Maximize profits for a given level of risk
, What does the beta coefficient represent? - ANSWER It is a statistically derived
measure of volatility.
If an investor knows the idiosyncratic risk, the investor knows the? - ANSWER Beta
Coefficient
Why is the depreciation expense taken out of the net income calculation, yet added
back at the end? - ANSWER Because depreciation expense is tax deductible.
Why would we reject a project based on NPV? - ANSWER The NPV is a negative
number
Why would we reject a project based on IRR? - ANSWER The discount rate is higher
than the IRR
What are two key elements of differential cash flow? - ANSWER Depreciation expense
and net income
Why is the NPV preferred over the IRR? - ANSWER It measures the dollar value and is
more reliable.
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in profitability? -
ANSWER Higher leverage leads to higher profitability for a given sale level.
What does the degree of financial leverage indicate? - ANSWER The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about the
firms risk profile? - ANSWER Financial leverage also means that more financing is done
through debt, not equity. Higher profits to shareholders.
What is the cash cycle? - ANSWER The amount of time to regenerate cash.
Why is float important to understand? - ANSWER To time cash expenditures
What should a company do to manage its working capital? - ANSWER Collect quickly
and pay slowly
Name what characterizes increased collection float? - ANSWER Increased float
indicates slower processing time.
In regards to Accounts Payable Balances, what is a good policy? - ANSWER Paying off
A/P on the last day due is a good policy.
What would be a good source of information to determine replacement cost? -
ANSWER Building Appraisal
