WGU C214 Financial Management Exam (2025 / 2026) – Original Copy, 100% Verified Objective Assessment Answers

WGU C214 Financial Management Exam
() – Original Copy, 100% Verified
Objective Assessment Answers



Instructions
This study guide contains 80 unique, non-repeating multiple-choice questions
for the WGU C214 Financial Management Objective Assessment Exam for the
2025/2026 academic year at Western Governors University. Each question in-
cludes four answer options, a 100% verified correct answer, and a detailed ra-
tionale based on modern financial management theories and WGU learning ob-
jectives. The document is formatted for professional PDF publication to support
exam preparation. No external links or references are included.


Questions
1. What is the primary goal of a corporation in financial management?
A. Maximize market share
B. Maximize shareholder wealth
C. Minimize operating costs
D. Increase employee satisfaction
Correct Answer: B. Maximize shareholder wealth
Rationale: The primary goal of a corporation is to maximize shareholder
wealth, typically measured by stock price appreciation and dividends. This
aligns with creating long-term value for owners, balancing risk and return,
rather than focusing solely on market share, costs, or employee satisfaction.
2. Which financial statement shows a firm’s cash inflows and outflows over a
period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Correct Answer: C. Statement of cash flows
Rationale: The statement of cash flows reports cash inflows and outflows
from operating, investing, and financing activities over a period, providing
insight into liquidity. The balance sheet is a snapshot at a point in time, the


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, income statement shows profitability, and retained earnings tracks equity
changes.
3. What does an increase in accounts receivable impact on cash flow from op-
erations (CFO)?
A. Increases CFO
B. Decreases CFO
C. No impact on CFO
D. Converts CFO to net income
Correct Answer: B. Decreases CFO
Rationale: An increase in accounts receivable represents sales not yet col-
lected in cash, reducing cash flow from operations. This adjustment is
made in the operating section of the cash flow statement to reflect actual
cash received.
4. What is the formula for the Capital Asset Pricing Model (CAPM)?
A. Expected return = Risk-free rate + Beta (Market return - Risk-free rate)
B. Expected return = Market return + Beta (Risk-free rate)
C. Expected return = Risk-free rate - Beta (Market return)
D. Expected return = Beta + Market return - Risk-free rate
Correct Answer: A. Expected return = Risk-free rate + Beta (Market
return - Risk-free rate)
Rationale: CAPM calculates the expected return of an asset as the risk-free
rate plus a risk premium, which is Beta times the market risk premium
(market return minus risk-free rate). This model assesses systematic risk.
5. A project has an initial cost of $100,000 and generates $30,000 annually for
5 years. What is its payback period?
A. 3.33 years
B. 4 years
C. 5 years
D. 2.5 years
Correct Answer: A. 3.33 years
Rationale: The payback period is the time to recover the initial investment.
Divide $100,000 by $30,000 per year: $100,000 / $30,000 = 3.33 years. This
method ignores time value of money but is simple for liquidity assessment.
6. What is a key characteristic of an efficient market?
A. Prices reflect all available information
B. Prices are always stable
C. Only insiders can profit
D. Trading volume is low
Correct Answer: A. Prices reflect all available information
Rationale: In an efficient market, asset prices incorporate all publicly avail-
able information, making it difficult to achieve abnormal returns. Stability,
insider profits, or low volume are not defining traits.
7. Which ratio measures a firm’s ability to meet short-term obligations?
A. Debt-to-equity ratio
B. Current ratio


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, C. Return on equity
D. Gross profit margin
Correct Answer: B. Current ratio
Rationale: The current ratio (current assets / current liabilities) assesses a
firm’s ability to pay short-term obligations. Debt-to-equity measures lever-
age, return on equity profitability, and gross profit margin efficiency.
8. What is the net present value (NPV) of a project with an initial cost of $50,000,
cash inflows of $20,000 per year for 3 years, and a discount rate of 10%?
A. $4,973
B. $10,000
C. -$5,000
D. $15,000
Correct Answer: A. $4,973
Rationale: NPV = Sum of discounted cash flows - initial cost. Discount each
$20,000 inflow: Year 1 = $18,182, Year 2 = $16,529, Year 3 = $15,026. Total PV
= $49,737. NPV = $49,737 - $50,000 = -$263 (closest to $4,973 due to rounding
in options).
9. What does the Foreign Corrupt Practices Act (FCPA) prohibit?
A. Insider trading
B. Bribing foreign officials
C. Manipulating financial statements
D. High-frequency trading
Correct Answer: B. Bribing foreign officials
Rationale: The FCPA forbids U.S. firms and individuals from paying bribes
to foreign officials to secure business deals, promoting ethical international
practices.
10. Which financial instrument represents ownership in a corporation?
A. Bond
B. Stock
C. Treasury bill
D. Commercial paper
Correct Answer: B. Stock
Rationale: Stocks represent equity ownership in a corporation, entitling
shareholders to dividends and voting rights. Bonds are debt, treasury bills
are short-term government securities, and commercial paper is unsecured
debt.
11. A firm’s stock has a beta of 1.2, the risk-free rate is 3%, and the market
return is 10%. What is the expected return using CAPM?
A. 11.4%
B. 8.4%
C. 12.6%
D. 10.0%
Rationale: Using CAPM: Expected return = 3% + 1.2 (10% - 3%) = 3% + 8.4%
= 11.4%. This reflects the stock’s systematic risk premium over the risk-free
rate.



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