WGU C214 Financial Management
Exam 2025 – Verified Questions with
100% Correct Answers and Rationales
Question 1
What is the primary purpose of financial management in a business?
A. To maximize employee satisfaction
B. To maximize shareholder wealth
C. To increase market share
D. To reduce operational costs
Correct Answer: B. To maximize shareholder wealth
Rationale: Financial management focuses on maximizing shareholder wealth by making
decisions that increase the firm’s stock value through effective investment, financing, and
dividend policies. Employee satisfaction (A), market share (C), and cost reduction (D) are
secondary objectives.
Question 2
Which financial statement shows a company’s financial position at a specific point in time?
A. Income statement
B. Balance sheet
C. Cash flow statement
D. Statement of retained earnings
Correct Answer: B. Balance sheet
Rationale: The balance sheet provides a snapshot of a company’s assets, liabilities, and equity at
a specific point in time. The income statement (A) shows profitability over a period, the cash
flow statement (C) tracks cash movements, and the statement of retained earnings (D) details
changes in equity.
Question 3
,What is the formula for the accounting equation?
A. Assets = Liabilities + Revenue
B. Assets = Liabilities + Equity
C. Assets = Revenue – Expenses
D. Assets = Equity – Liabilities
Correct Answer: B. Assets = Liabilities + Equity
Rationale: The accounting equation (Assets = Liabilities + Equity) is the foundation of double-
entry accounting, ensuring the balance sheet remains balanced. The other options misrepresent
the relationship between financial components.
Question 4
A company reports net income of $50,000 and pays $10,000 in dividends. What happens to
retained earnings?
A. Increases by $60,000
B. Increases by $40,000
C. Decreases by $10,000
D. Remains unchanged
Correct Answer: B. Increases by $40,000
Rationale: Retained earnings increase by net income ($50,000) minus dividends paid ($10,000),
resulting in a $40,000 increase. The other options incorrectly calculate the effect on retained
earnings.
Question 5
What is the time value of money (TVM) concept?
A. Money loses value over time due to inflation
B. Money today is worth more than the same amount in the future
C. Money grows linearly over time
D. Money’s value is constant regardless of time
Correct Answer: B. Money today is worth more than the same amount in the future
Rationale: TVM states that money today is worth more due to its potential to earn interest or
returns over time. Inflation (A) is a factor but not the core concept, money does not grow linearly
(C), and value is not constant (D).
Question 6
, What is the formula for calculating the future value (FV) of a single sum?
A. FV = PV × (1 + r)^n
B. FV = PV ÷ (1 + r)^n
C. FV = PV × (1 – r)^n
D. FV = PV + r × n
Correct Answer: A. FV = PV × (1 + r)^n
Rationale: The future value formula, FV = PV × (1 + r)^n, calculates the value of a present sum
(PV) compounded at rate (r) over n periods. The other options represent incorrect formulas for
FV.
Question 7
A company invests $10,000 at a 5% annual interest rate for 3 years, compounded annually. What
is the future value?
A. $11,500
B. $11,576
C. $12,155
D. $15,000
Correct Answer: B. $11,576
Rationale: Using FV = PV × (1 + r)^n, where PV = $10,000, r = 0.05, n = 3: FV = 10,000 ×
(1.05)^3 = 10,000 × 1.157625 = $11,576 (rounded). The other options miscalculate the
compounded value.
Question 8
What is the present value (PV) of $5,000 received in 4 years at a 6% discount rate?
A. $3,958
B. $4,212
C. $5,000
D. $6,312
Correct Answer: A. $3,958
Rationale: PV = FV ÷ (1 + r)^n, where FV = $5,000, r = 0.06, n = 4: PV = 5,000 ÷ (1.06)^4 =
5,000 ÷ 1.262476 = $3,958 (rounded). The other options miscalculate the discounted value.
Question 9
Exam 2025 – Verified Questions with
100% Correct Answers and Rationales
Question 1
What is the primary purpose of financial management in a business?
A. To maximize employee satisfaction
B. To maximize shareholder wealth
C. To increase market share
D. To reduce operational costs
Correct Answer: B. To maximize shareholder wealth
Rationale: Financial management focuses on maximizing shareholder wealth by making
decisions that increase the firm’s stock value through effective investment, financing, and
dividend policies. Employee satisfaction (A), market share (C), and cost reduction (D) are
secondary objectives.
Question 2
Which financial statement shows a company’s financial position at a specific point in time?
A. Income statement
B. Balance sheet
C. Cash flow statement
D. Statement of retained earnings
Correct Answer: B. Balance sheet
Rationale: The balance sheet provides a snapshot of a company’s assets, liabilities, and equity at
a specific point in time. The income statement (A) shows profitability over a period, the cash
flow statement (C) tracks cash movements, and the statement of retained earnings (D) details
changes in equity.
Question 3
,What is the formula for the accounting equation?
A. Assets = Liabilities + Revenue
B. Assets = Liabilities + Equity
C. Assets = Revenue – Expenses
D. Assets = Equity – Liabilities
Correct Answer: B. Assets = Liabilities + Equity
Rationale: The accounting equation (Assets = Liabilities + Equity) is the foundation of double-
entry accounting, ensuring the balance sheet remains balanced. The other options misrepresent
the relationship between financial components.
Question 4
A company reports net income of $50,000 and pays $10,000 in dividends. What happens to
retained earnings?
A. Increases by $60,000
B. Increases by $40,000
C. Decreases by $10,000
D. Remains unchanged
Correct Answer: B. Increases by $40,000
Rationale: Retained earnings increase by net income ($50,000) minus dividends paid ($10,000),
resulting in a $40,000 increase. The other options incorrectly calculate the effect on retained
earnings.
Question 5
What is the time value of money (TVM) concept?
A. Money loses value over time due to inflation
B. Money today is worth more than the same amount in the future
C. Money grows linearly over time
D. Money’s value is constant regardless of time
Correct Answer: B. Money today is worth more than the same amount in the future
Rationale: TVM states that money today is worth more due to its potential to earn interest or
returns over time. Inflation (A) is a factor but not the core concept, money does not grow linearly
(C), and value is not constant (D).
Question 6
, What is the formula for calculating the future value (FV) of a single sum?
A. FV = PV × (1 + r)^n
B. FV = PV ÷ (1 + r)^n
C. FV = PV × (1 – r)^n
D. FV = PV + r × n
Correct Answer: A. FV = PV × (1 + r)^n
Rationale: The future value formula, FV = PV × (1 + r)^n, calculates the value of a present sum
(PV) compounded at rate (r) over n periods. The other options represent incorrect formulas for
FV.
Question 7
A company invests $10,000 at a 5% annual interest rate for 3 years, compounded annually. What
is the future value?
A. $11,500
B. $11,576
C. $12,155
D. $15,000
Correct Answer: B. $11,576
Rationale: Using FV = PV × (1 + r)^n, where PV = $10,000, r = 0.05, n = 3: FV = 10,000 ×
(1.05)^3 = 10,000 × 1.157625 = $11,576 (rounded). The other options miscalculate the
compounded value.
Question 8
What is the present value (PV) of $5,000 received in 4 years at a 6% discount rate?
A. $3,958
B. $4,212
C. $5,000
D. $6,312
Correct Answer: A. $3,958
Rationale: PV = FV ÷ (1 + r)^n, where FV = $5,000, r = 0.06, n = 4: PV = 5,000 ÷ (1.06)^4 =
5,000 ÷ 1.262476 = $3,958 (rounded). The other options miscalculate the discounted value.
Question 9
