WGU C214 OA Financial Management
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Question 1
A company invests $250,000 today in a project that will return $80,000 per year for the next 5
years. Using a 10% discount rate, what is the most accurate description of the net present value
(NPV)?
A. Negative, because total cash inflows are less than the initial investment
B. Positive, because the present value of inflows exceeds the $250,000 outflow
C. Zero, because the payback period is exactly 5 years
D. Cannot be determined without inflation adjustment
Correct Answer: B
Rationale: PV of annuity = $80,000 × 3.7908 (PVIFA 10%, 5 periods) = $303,264. NPV =
$303,264 – $250,000 = +$53,264. Since NPV > 0, the project adds value at a 10% required
return.
Question 2
You deposit $10,000 today at 6% annual interest compounded quarterly. What is the future value
after 4 years?
A. $12,624.77
B. $12,702.45
C. $12,624.36
D. $13,000.00
Correct Answer: B
Rationale: Quarterly rate = 6%/4 = 1.5%; periods = 4 × 4 = 16. FV = $10,000 × (1.015)^16 =
$12,702.45.
Question 3
A zero-coupon bond with a face value of $1,000 matures in 8 years and is currently priced at
$620. What is the yield to maturity (YTM)?
,A. 6.1%
B. 6.9%
C. 7.7%
D. 8.3%
Correct Answer: C
Rationale: Using the approximation or financial calculator: $620 = $1,000 / (1 + YTM)^8 →
YTM ≈ 7.7% (exact calculation yields 7.72%).
Question 4
A bond pays 7% annual coupon, has 10 years to maturity, and a par value of $1,000. If the
market yield is 5%, the bond will trade at:
A. A discount
B. Par
C. A premium
D. Cannot be determined
Correct Answer: C
Rationale: When market yield (5%) is lower than coupon rate (7%), investors are willing to pay
more than par for the higher cash flows → bond trades at a premium.
Question 5
A preferred stock pays a $4.50 annual dividend and similar-risk preferreds yield 6%. Using the
constant dividend model, what is the value of the stock?
A. $64.29
B. $75.00
C. $81.82
D. $90.00
Correct Answer: B
Rationale: Value of perpetual preferred = Dividend / Required return = $4..06 = $75.00.
Question 6
, A company’s common stock has a current dividend of $2.40, expected growth rate of 5%, and
beta of 1.2. The risk-free rate is 3% and market return is 10%. What is the required return using
CAPM?
A. 11.4%
B. 12.2%
C. 13.4%
D. 14.0%
Correct Answer: A
Rationale: CAPM = Rf + β(Rm – Rf) = 3% + 1.2(10% – 3%) = 3% + 8.4% = 11.4%.
Question 7
Using the Gordon Growth Model with the facts from Question 6, what is the intrinsic value of
the stock?
A. $42.35
B. $44.44
C. $50.53
D. $52.80
Correct Answer: B
Rationale: P0 = D1 / (r – g) = $2.40 × 1.05 / (0.114 – 0.05) = $2..064 = $44.44.
Question 8
A project requires $800,000 initial investment and generates cash flows of $250,000 per year for
5 years. What is the payback period?
A. 3.0 years
B. 3.2 years
C. 3.5 years
D. 4.0 years
Correct Answer: B
Rationale: Cumulative cash flows: Year 1 = $250k, Year 2 = $500k, Year 3 = $750k, Year 4 =
$1,000k. Recovery occurs in Year 4: $800k – $750k = $50k needed / $250k per year = 0.2 years
→ 3 + 0.2 = 3.2 years.
Retake Exam Latest Questions and Answers
() (Verified Answers)
Question 1
A company invests $250,000 today in a project that will return $80,000 per year for the next 5
years. Using a 10% discount rate, what is the most accurate description of the net present value
(NPV)?
A. Negative, because total cash inflows are less than the initial investment
B. Positive, because the present value of inflows exceeds the $250,000 outflow
C. Zero, because the payback period is exactly 5 years
D. Cannot be determined without inflation adjustment
Correct Answer: B
Rationale: PV of annuity = $80,000 × 3.7908 (PVIFA 10%, 5 periods) = $303,264. NPV =
$303,264 – $250,000 = +$53,264. Since NPV > 0, the project adds value at a 10% required
return.
Question 2
You deposit $10,000 today at 6% annual interest compounded quarterly. What is the future value
after 4 years?
A. $12,624.77
B. $12,702.45
C. $12,624.36
D. $13,000.00
Correct Answer: B
Rationale: Quarterly rate = 6%/4 = 1.5%; periods = 4 × 4 = 16. FV = $10,000 × (1.015)^16 =
$12,702.45.
Question 3
A zero-coupon bond with a face value of $1,000 matures in 8 years and is currently priced at
$620. What is the yield to maturity (YTM)?
,A. 6.1%
B. 6.9%
C. 7.7%
D. 8.3%
Correct Answer: C
Rationale: Using the approximation or financial calculator: $620 = $1,000 / (1 + YTM)^8 →
YTM ≈ 7.7% (exact calculation yields 7.72%).
Question 4
A bond pays 7% annual coupon, has 10 years to maturity, and a par value of $1,000. If the
market yield is 5%, the bond will trade at:
A. A discount
B. Par
C. A premium
D. Cannot be determined
Correct Answer: C
Rationale: When market yield (5%) is lower than coupon rate (7%), investors are willing to pay
more than par for the higher cash flows → bond trades at a premium.
Question 5
A preferred stock pays a $4.50 annual dividend and similar-risk preferreds yield 6%. Using the
constant dividend model, what is the value of the stock?
A. $64.29
B. $75.00
C. $81.82
D. $90.00
Correct Answer: B
Rationale: Value of perpetual preferred = Dividend / Required return = $4..06 = $75.00.
Question 6
, A company’s common stock has a current dividend of $2.40, expected growth rate of 5%, and
beta of 1.2. The risk-free rate is 3% and market return is 10%. What is the required return using
CAPM?
A. 11.4%
B. 12.2%
C. 13.4%
D. 14.0%
Correct Answer: A
Rationale: CAPM = Rf + β(Rm – Rf) = 3% + 1.2(10% – 3%) = 3% + 8.4% = 11.4%.
Question 7
Using the Gordon Growth Model with the facts from Question 6, what is the intrinsic value of
the stock?
A. $42.35
B. $44.44
C. $50.53
D. $52.80
Correct Answer: B
Rationale: P0 = D1 / (r – g) = $2.40 × 1.05 / (0.114 – 0.05) = $2..064 = $44.44.
Question 8
A project requires $800,000 initial investment and generates cash flows of $250,000 per year for
5 years. What is the payback period?
A. 3.0 years
B. 3.2 years
C. 3.5 years
D. 4.0 years
Correct Answer: B
Rationale: Cumulative cash flows: Year 1 = $250k, Year 2 = $500k, Year 3 = $750k, Year 4 =
$1,000k. Recovery occurs in Year 4: $800k – $750k = $50k needed / $250k per year = 0.2 years
→ 3 + 0.2 = 3.2 years.
