1
WGU C214 Financial Management
Exam 2025/2026 – Verified Questions
with Correct Answers
1. What is the primary goal of financial management in a publicly traded corporation?
a) Maximize market share
b) Minimize operational costs
c) Maximize shareholder value
d) Increase employee satisfaction
Rationale: The primary goal of financial management is to maximize shareholder
value by making decisions that increase stock price and dividends. Market share, cost
minimization, and employee satisfaction are secondary considerations.
2. Which financial statement provides a snapshot of a company’s assets, liabilities, and
equity at a specific point in time?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of retained earnings
Rationale: The balance sheet reports assets, liabilities, and equity at a single point in
time, unlike the income statement, cash flow statement, or retained earnings statement,
which cover a period.
3. A company’s stock price increases in an efficient market. What assumption can be
made?
a) New positive information was released
b) The company reduced its workforce
c) The company increased its debt ratio
d) The company issued new bonds
Rationale: In an efficient market, stock prices reflect all available information. A
price increase suggests new positive information, such as a product launch or earnings
growth, was incorporated. Other options are less likely to directly cause a price increase.
, 2
4. What does the Foreign Corrupt Practices Act (FCPA) prohibit U.S. companies from
doing?
a) Investing in foreign markets
b) Outsourcing manufacturing
c) Paying bribes to foreign officials
d) Trading on secondary markets
Rationale: The FCPA prohibits U.S. firms from paying bribes to foreign officials to
secure business deals, ensuring ethical conduct. Other activities are not restricted by the
FCPA.
5. Which equation represents the basic structure of a balance sheet?
a) Assets = Liabilities + Revenue
b) Assets = Liabilities + Equity
c) Equity = Assets + Liabilities
d) Liabilities = Assets + Equity
Rationale: The balance sheet equation is Assets = Liabilities + Equity, reflecting the
firm’s resources and how they are financed. Other options misrepresent this relationship.
6. What is the purpose of the statement of cash flows?
a) To report net income for a period
b) To show changes in equity
c) To explain changes in cash balance over a period
d) To list long-term assets
Rationale: The statement of cash flows tracks cash inflows and outflows from
operating, investing, and financing activities, explaining changes in cash balance. Other
statements serve different purposes.
7. How is the change in retained earnings calculated?
a) Net income + Dividends
b) Net income – Dividends
c) Revenue – Expenses
d) Assets – Liabilities
, 3
Rationale: Retained earnings increase by net income and decrease by dividends paid.
The formula is Net income – Dividends. Other options relate to different financial
metrics.
8. A company reports EBIT of $1,000,000, depreciation of $50,000, capital
expenditures of $20,000, and a tax rate of 30%. What is the free cash flow if there is
no change in working capital?
a) $680,000
b) $730,000
c) $750,000
d) $780,000
Rationale: Free cash flow (FCF) = EBIT × (1 – Tax rate) + Depreciation – Capital
expenditures – Change in working capital. Here, FCF = $1,000,000 × (1 – 0.3) + $50,000
– $20,000 – 0 = $700,000 + $50,000 – $20,000 = $730,000.
9. Which component is included in the income statement but not in the statement of
cash flows?
a) Cash sales
b) Depreciation expense
c) Dividends paid
d) Interest expense
Rationale: Depreciation is a non-cash expense included in the income statement but
added back in the cash flow statement since it does not involve cash outflow. Other
options involve cash transactions.
10. What does an increase in accounts receivable do to cash flow from operations
(CFO)?
a) Increases CFO
b) Decreases CFO
c) No effect on CFO
d) Increases cash flow from investing
Rationale: An increase in accounts receivable means cash has not yet been collected,
reducing cash flow from operations. It does not affect investing cash flows.
WGU C214 Financial Management
Exam 2025/2026 – Verified Questions
with Correct Answers
1. What is the primary goal of financial management in a publicly traded corporation?
a) Maximize market share
b) Minimize operational costs
c) Maximize shareholder value
d) Increase employee satisfaction
Rationale: The primary goal of financial management is to maximize shareholder
value by making decisions that increase stock price and dividends. Market share, cost
minimization, and employee satisfaction are secondary considerations.
2. Which financial statement provides a snapshot of a company’s assets, liabilities, and
equity at a specific point in time?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of retained earnings
Rationale: The balance sheet reports assets, liabilities, and equity at a single point in
time, unlike the income statement, cash flow statement, or retained earnings statement,
which cover a period.
3. A company’s stock price increases in an efficient market. What assumption can be
made?
a) New positive information was released
b) The company reduced its workforce
c) The company increased its debt ratio
d) The company issued new bonds
Rationale: In an efficient market, stock prices reflect all available information. A
price increase suggests new positive information, such as a product launch or earnings
growth, was incorporated. Other options are less likely to directly cause a price increase.
, 2
4. What does the Foreign Corrupt Practices Act (FCPA) prohibit U.S. companies from
doing?
a) Investing in foreign markets
b) Outsourcing manufacturing
c) Paying bribes to foreign officials
d) Trading on secondary markets
Rationale: The FCPA prohibits U.S. firms from paying bribes to foreign officials to
secure business deals, ensuring ethical conduct. Other activities are not restricted by the
FCPA.
5. Which equation represents the basic structure of a balance sheet?
a) Assets = Liabilities + Revenue
b) Assets = Liabilities + Equity
c) Equity = Assets + Liabilities
d) Liabilities = Assets + Equity
Rationale: The balance sheet equation is Assets = Liabilities + Equity, reflecting the
firm’s resources and how they are financed. Other options misrepresent this relationship.
6. What is the purpose of the statement of cash flows?
a) To report net income for a period
b) To show changes in equity
c) To explain changes in cash balance over a period
d) To list long-term assets
Rationale: The statement of cash flows tracks cash inflows and outflows from
operating, investing, and financing activities, explaining changes in cash balance. Other
statements serve different purposes.
7. How is the change in retained earnings calculated?
a) Net income + Dividends
b) Net income – Dividends
c) Revenue – Expenses
d) Assets – Liabilities
, 3
Rationale: Retained earnings increase by net income and decrease by dividends paid.
The formula is Net income – Dividends. Other options relate to different financial
metrics.
8. A company reports EBIT of $1,000,000, depreciation of $50,000, capital
expenditures of $20,000, and a tax rate of 30%. What is the free cash flow if there is
no change in working capital?
a) $680,000
b) $730,000
c) $750,000
d) $780,000
Rationale: Free cash flow (FCF) = EBIT × (1 – Tax rate) + Depreciation – Capital
expenditures – Change in working capital. Here, FCF = $1,000,000 × (1 – 0.3) + $50,000
– $20,000 – 0 = $700,000 + $50,000 – $20,000 = $730,000.
9. Which component is included in the income statement but not in the statement of
cash flows?
a) Cash sales
b) Depreciation expense
c) Dividends paid
d) Interest expense
Rationale: Depreciation is a non-cash expense included in the income statement but
added back in the cash flow statement since it does not involve cash outflow. Other
options involve cash transactions.
10. What does an increase in accounts receivable do to cash flow from operations
(CFO)?
a) Increases CFO
b) Decreases CFO
c) No effect on CFO
d) Increases cash flow from investing
Rationale: An increase in accounts receivable means cash has not yet been collected,
reducing cash flow from operations. It does not affect investing cash flows.
