WGU C214 OA Financial Management (2026) ACTUAL EXAM 200
QUESTIONS AND ALL CORRECT ANSWERS 100% SOLVED AND
GUARANTEED SUCCESS!!
If accounts receivable increases, what is the impact on CFO?
CFO decreases
Are actual taxes paid the same as how on the GAAP income statement?
No.
Actual Taxes = IRS Rules
Income Statement = GAAP
Which decisions require using subjective estimates?
Economic life of a new asset.
If there is a 30% change of a recession, what is the probability of expansion?
70%
*The sum of probabilities must equal 100%
How much interest is paid on a 6% bond over 2 years and 3 months?
2 years and 3 months:
2 + (3/12) = 2 + (.25) = 2.25
6% x 1,000 = $60 per year
$60 x 2.25 = $135
How does a "prudent investor" select investments?
Seeks the highest return for "appropriate" amount of risk.
,What do points on the Efficient Frontier measure?
The maximum return for a given level of risk; maximum Return-to-Risk ratio.
What is "Beta?"
Measure of a stock's risk relative to the market.
Why are accurate forecasts important?
Plan for resources for production; accurate evaluation of capital projects.
Which ratio is used in valuing a private company?
PE ratio in the "Comparable Multiples" method.
What are 3 costs associated with holding inventory?
1. Product
2. Storage
3. Opportunity
What risk is eliminated by a diversified portfolio?
Idiosyncratic Risk - Risk affecting a single firm.
What are the impacts of outsourcing?
Fewer U.S. jobs and lower priced products.
What are the impacts of tariffs?
More U.S. jobs and higher product costs for consumers.
What securities are exempt from FEDERAL income taxation?
Municipal bond interest is tax-exempt. Treasury securities ARE taxable.
Why would a firm prefer to issue bonds rather than stock?
Debt has a lower required return. Debt interest is tax deductible.
What is the impact on the APY as the number of interest payments per year
increase?
APY increases
,What is the present value of future cash flows of a stock called?
Intrinsic Value - The "real" value of the stock. PV of cash to investor.
What indicates if a stock is a "good investment?"
The price of the stock is less than the "intrinsic value."
In the event of bankruptcy, what is the order of claims settlement?
1. Creditors
2. Subordinated Debt
3. Preferred Stock
4. Common Stock
What is a spontaneous account?
One that changes with the level of sales -- Current Assets & Liabilities.
What is a discretionary account?
One that changes due to management decision -- Bonds Outstanding.
If the financial ratios of 2 firms are compared, what is it called?
Cross-Sectional Analysis
If the debt ratio increases, what is the impact on Return on Equity (ROE)?
ROE increases due to greater reliance on cheap debt financing.
What financial structure causes profitability to be more volatile?
Leverage. Higher leverage ratios mean more volatile profits.
If debt is cheaper than equity, why not all debt?
Bankruptcy Risk -- Equity is the cushion against bankruptcy.
If interest rates increase, what is the impact on the Weighted Average Cost of
Capital (WACC)?
Required returns on debt and equity increase. Thus WACC increases.
The Prospectus contains what information?
, 1. Audited Financial Statements
2. Description of Security
3. Operating Information
What is the purpose of the Securities and Exchange Commission (SEC)?
To ensure that U.S. investors in the U.S. markets are well informed.
Why would a totally domestic firm worry about international trade?
Competition from foreign firm imports to the U.S.
If a firm's ROE is greater than the Return on Assets (ROA), what does that
mean?
The firm uses debt financing wisely to increase profitability.
What is the term that refers to corporate managers acting in their own interests
rather than the stockholders?
Agency Cost
How can a firm avoid agency cost?
Tie compensation to the stock price.
What is a "secured loan" or "secured bond?"
Firm pledges collateral to back the loan or bond, eliminating bankruptcy risk.
What is "free cash flow?"
Cash flows from operations minus cash necessary for reinvestment in Property,
Plant, and Equipment (PPE).
Why would the Annual Percentage Yield (APY) be greater than the Annual
Percentage Rate (APR)?
Interest payments are more frequent than annual.
What determines when revenue is "recognized" on the income statement?
When the product is shipped or delivered to the customer.
What is the possible bad side-effect of a high sales-to-inventory ratio?
QUESTIONS AND ALL CORRECT ANSWERS 100% SOLVED AND
GUARANTEED SUCCESS!!
If accounts receivable increases, what is the impact on CFO?
CFO decreases
Are actual taxes paid the same as how on the GAAP income statement?
No.
Actual Taxes = IRS Rules
Income Statement = GAAP
Which decisions require using subjective estimates?
Economic life of a new asset.
If there is a 30% change of a recession, what is the probability of expansion?
70%
*The sum of probabilities must equal 100%
How much interest is paid on a 6% bond over 2 years and 3 months?
2 years and 3 months:
2 + (3/12) = 2 + (.25) = 2.25
6% x 1,000 = $60 per year
$60 x 2.25 = $135
How does a "prudent investor" select investments?
Seeks the highest return for "appropriate" amount of risk.
,What do points on the Efficient Frontier measure?
The maximum return for a given level of risk; maximum Return-to-Risk ratio.
What is "Beta?"
Measure of a stock's risk relative to the market.
Why are accurate forecasts important?
Plan for resources for production; accurate evaluation of capital projects.
Which ratio is used in valuing a private company?
PE ratio in the "Comparable Multiples" method.
What are 3 costs associated with holding inventory?
1. Product
2. Storage
3. Opportunity
What risk is eliminated by a diversified portfolio?
Idiosyncratic Risk - Risk affecting a single firm.
What are the impacts of outsourcing?
Fewer U.S. jobs and lower priced products.
What are the impacts of tariffs?
More U.S. jobs and higher product costs for consumers.
What securities are exempt from FEDERAL income taxation?
Municipal bond interest is tax-exempt. Treasury securities ARE taxable.
Why would a firm prefer to issue bonds rather than stock?
Debt has a lower required return. Debt interest is tax deductible.
What is the impact on the APY as the number of interest payments per year
increase?
APY increases
,What is the present value of future cash flows of a stock called?
Intrinsic Value - The "real" value of the stock. PV of cash to investor.
What indicates if a stock is a "good investment?"
The price of the stock is less than the "intrinsic value."
In the event of bankruptcy, what is the order of claims settlement?
1. Creditors
2. Subordinated Debt
3. Preferred Stock
4. Common Stock
What is a spontaneous account?
One that changes with the level of sales -- Current Assets & Liabilities.
What is a discretionary account?
One that changes due to management decision -- Bonds Outstanding.
If the financial ratios of 2 firms are compared, what is it called?
Cross-Sectional Analysis
If the debt ratio increases, what is the impact on Return on Equity (ROE)?
ROE increases due to greater reliance on cheap debt financing.
What financial structure causes profitability to be more volatile?
Leverage. Higher leverage ratios mean more volatile profits.
If debt is cheaper than equity, why not all debt?
Bankruptcy Risk -- Equity is the cushion against bankruptcy.
If interest rates increase, what is the impact on the Weighted Average Cost of
Capital (WACC)?
Required returns on debt and equity increase. Thus WACC increases.
The Prospectus contains what information?
, 1. Audited Financial Statements
2. Description of Security
3. Operating Information
What is the purpose of the Securities and Exchange Commission (SEC)?
To ensure that U.S. investors in the U.S. markets are well informed.
Why would a totally domestic firm worry about international trade?
Competition from foreign firm imports to the U.S.
If a firm's ROE is greater than the Return on Assets (ROA), what does that
mean?
The firm uses debt financing wisely to increase profitability.
What is the term that refers to corporate managers acting in their own interests
rather than the stockholders?
Agency Cost
How can a firm avoid agency cost?
Tie compensation to the stock price.
What is a "secured loan" or "secured bond?"
Firm pledges collateral to back the loan or bond, eliminating bankruptcy risk.
What is "free cash flow?"
Cash flows from operations minus cash necessary for reinvestment in Property,
Plant, and Equipment (PPE).
Why would the Annual Percentage Yield (APY) be greater than the Annual
Percentage Rate (APR)?
Interest payments are more frequent than annual.
What determines when revenue is "recognized" on the income statement?
When the product is shipped or delivered to the customer.
What is the possible bad side-effect of a high sales-to-inventory ratio?
