WGU C214 Financial Management Final
Exam 2025/2026 – Verified Questions
with Correct Answers and Explanations
Question 1
TechTrend Inc. is evaluating a new project requiring a $500,000 investment with expected cash
flows of $150,000 annually for 5 years. Using a 10% discount rate, what is the net present value
(NPV) of the project?
A. $75,816
B. $68,301
C. $50,245
D. -$12,500
Expert Explanation: NPV is calculated as the present value of cash inflows minus the initial
investment. Using the formula for the present value of an annuity, PV = C × [(1 - (1 + r)^-n) / r],
where C = $150,000, r = 0.10, and n = 5, the PV of inflows is $150,000 × 3.7908 = $568,620.
Subtracting the $500,000 investment gives NPV = $568,620 - $500,000 = $68,620, closest to B.
$68,301. This positive NPV indicates the project is financially viable, as it adds value at a 10%
discount rate.
Question 2
RetailCo’s balance sheet shows $2 million in assets, $1.2 million in liabilities, and $800,000 in
equity. What is the debt-to-equity ratio?
A. 0.67
B. 1.50
C. 2.00
D. 2.50
Expert Explanation: The debt-to-equity ratio is calculated as Total Liabilities / Total Equity =
$1,200,000 / $800,000 = 1.50. This ratio indicates the company’s financial leverage, showing
that for every dollar of equity, there is $1.50 in debt, reflecting a moderate reliance on debt
financing.
,Question 3
ManuFact Inc. is considering a machine costing $200,000 with a 4-year life and no salvage
value. Annual cash flows are $60,000, and the cost of capital is 8%. Should the project be
accepted based on the internal rate of return (IRR)?
A. Yes, IRR exceeds 8%
B. No, IRR is below 8%
C. Yes, IRR equals 8%
D. Cannot determine without NPV
Expert Explanation: IRR is the rate where NPV = 0. Using the IRR approximation, set NPV =
0: $200,000 = $60,000 × PVIFA(r, 4). Solving for PVIFA = $200,000 / $60,000 = 3.333. For n =
4, PVIFA at 8% is 3.312, and at 10% is 3.170. Since 3.333 lies between these, IRR is slightly
below 8%. Thus, the project should not be accepted as IRR < cost of capital (8%).
Question 4
A bond at InvestCorp has a $1,000 face value, a 6% coupon rate, and 5 years to maturity. If the
market yield is 7%, what is the bond’s price?
A. $1,041.63
B. $958.42
C. $1,000.00
D. $920.15
Expert Explanation: Bond price is the present value of coupon payments plus the face value
discounted at the yield. Annual coupon = $1,000 × 6% = $60. PV of coupons = $60 × [(1 - (1 +
0.07)^-5) / 0.07] = $60 × 4.1002 = $246.01. PV of face value = $1,000 / (1 + 0.07)^5 = $712.99.
Total price = $246.01 + $712.99 = $958.42. Since yield > coupon, the bond sells at a discount.
Question 5
EcoBuild Co. has a beta of 1.2, the risk-free rate is 3%, and the market return is 9%. What is the
expected return using the Capital Asset Pricing Model (CAPM)?
A. 10.2%
B. 10.2%
C. 11.4%
D. 12.6%
, Expert Explanation: CAPM formula is E(R) = Rf + β(Rm - Rf). Substituting: E(R) = 0.03 +
1.2(0.09 - 0.03) = 0.03 + 1.2 × 0.06 = 0.03 + 0.072 = 0.102 or 10.2%. This reflects the risk-
adjusted return for EcoBuild’s stock.
Question 6
RetailMart’s current ratio is 1.8, with current assets of $900,000. What are its current liabilities?
A. $500,000
B. $500,000
C. $600,000
D. $750,000
Expert Explanation: Current ratio = Current Assets / Current Liabilities. Given 1.8 = $900,000
/ CL, solve for CL = $900,.8 = $500,000. This measures short-term liquidity, indicating
RetailMart can cover liabilities 1.8 times with assets.
Question 7
A firm’s weighted average cost of capital (WACC) is 10%. It finances 60% with debt at 6% and
40% with equity at 15%. What is the after-tax cost of debt if the tax rate is 30%?
A. 4.2%
B. 4.2%
C. 5.0%
D. 6.0%
Expert Explanation: After-tax cost of debt = Cost of debt × (1 - Tax Rate) = 6% × (1 - 0.30) =
6% × 0.70 = 4.2%. The tax shield reduces the effective cost of debt, lowering WACC and
impacting project evaluations.
Question 8
TechNova issues new stock to raise $1 million but incurs 8% flotation costs. What is the net
amount received?
A. $920,000
B. $920,000
C. $900,000
D. $880,000
Exam 2025/2026 – Verified Questions
with Correct Answers and Explanations
Question 1
TechTrend Inc. is evaluating a new project requiring a $500,000 investment with expected cash
flows of $150,000 annually for 5 years. Using a 10% discount rate, what is the net present value
(NPV) of the project?
A. $75,816
B. $68,301
C. $50,245
D. -$12,500
Expert Explanation: NPV is calculated as the present value of cash inflows minus the initial
investment. Using the formula for the present value of an annuity, PV = C × [(1 - (1 + r)^-n) / r],
where C = $150,000, r = 0.10, and n = 5, the PV of inflows is $150,000 × 3.7908 = $568,620.
Subtracting the $500,000 investment gives NPV = $568,620 - $500,000 = $68,620, closest to B.
$68,301. This positive NPV indicates the project is financially viable, as it adds value at a 10%
discount rate.
Question 2
RetailCo’s balance sheet shows $2 million in assets, $1.2 million in liabilities, and $800,000 in
equity. What is the debt-to-equity ratio?
A. 0.67
B. 1.50
C. 2.00
D. 2.50
Expert Explanation: The debt-to-equity ratio is calculated as Total Liabilities / Total Equity =
$1,200,000 / $800,000 = 1.50. This ratio indicates the company’s financial leverage, showing
that for every dollar of equity, there is $1.50 in debt, reflecting a moderate reliance on debt
financing.
,Question 3
ManuFact Inc. is considering a machine costing $200,000 with a 4-year life and no salvage
value. Annual cash flows are $60,000, and the cost of capital is 8%. Should the project be
accepted based on the internal rate of return (IRR)?
A. Yes, IRR exceeds 8%
B. No, IRR is below 8%
C. Yes, IRR equals 8%
D. Cannot determine without NPV
Expert Explanation: IRR is the rate where NPV = 0. Using the IRR approximation, set NPV =
0: $200,000 = $60,000 × PVIFA(r, 4). Solving for PVIFA = $200,000 / $60,000 = 3.333. For n =
4, PVIFA at 8% is 3.312, and at 10% is 3.170. Since 3.333 lies between these, IRR is slightly
below 8%. Thus, the project should not be accepted as IRR < cost of capital (8%).
Question 4
A bond at InvestCorp has a $1,000 face value, a 6% coupon rate, and 5 years to maturity. If the
market yield is 7%, what is the bond’s price?
A. $1,041.63
B. $958.42
C. $1,000.00
D. $920.15
Expert Explanation: Bond price is the present value of coupon payments plus the face value
discounted at the yield. Annual coupon = $1,000 × 6% = $60. PV of coupons = $60 × [(1 - (1 +
0.07)^-5) / 0.07] = $60 × 4.1002 = $246.01. PV of face value = $1,000 / (1 + 0.07)^5 = $712.99.
Total price = $246.01 + $712.99 = $958.42. Since yield > coupon, the bond sells at a discount.
Question 5
EcoBuild Co. has a beta of 1.2, the risk-free rate is 3%, and the market return is 9%. What is the
expected return using the Capital Asset Pricing Model (CAPM)?
A. 10.2%
B. 10.2%
C. 11.4%
D. 12.6%
, Expert Explanation: CAPM formula is E(R) = Rf + β(Rm - Rf). Substituting: E(R) = 0.03 +
1.2(0.09 - 0.03) = 0.03 + 1.2 × 0.06 = 0.03 + 0.072 = 0.102 or 10.2%. This reflects the risk-
adjusted return for EcoBuild’s stock.
Question 6
RetailMart’s current ratio is 1.8, with current assets of $900,000. What are its current liabilities?
A. $500,000
B. $500,000
C. $600,000
D. $750,000
Expert Explanation: Current ratio = Current Assets / Current Liabilities. Given 1.8 = $900,000
/ CL, solve for CL = $900,.8 = $500,000. This measures short-term liquidity, indicating
RetailMart can cover liabilities 1.8 times with assets.
Question 7
A firm’s weighted average cost of capital (WACC) is 10%. It finances 60% with debt at 6% and
40% with equity at 15%. What is the after-tax cost of debt if the tax rate is 30%?
A. 4.2%
B. 4.2%
C. 5.0%
D. 6.0%
Expert Explanation: After-tax cost of debt = Cost of debt × (1 - Tax Rate) = 6% × (1 - 0.30) =
6% × 0.70 = 4.2%. The tax shield reduces the effective cost of debt, lowering WACC and
impacting project evaluations.
Question 8
TechNova issues new stock to raise $1 million but incurs 8% flotation costs. What is the net
amount received?
A. $920,000
B. $920,000
C. $900,000
D. $880,000
