EDIUG YDUTS • 412C
★ ★
Western Governors University
WGU Michael O. Leavitt School of Business
A NEW KIND OF U.
EST. 1997
C214 — Financial Management: Multiple Attempt Study Guide
K E Y CO N C E PTS · C A LCU L AT I O N S · F I N A N C I A L STAT E M E N TS · VA LU AT I O N · C A P I TA L B U D G E T I N G
INSTITUTION Western Governors University COURSE CODE C214
PROGRAM BS Business Administration · Finance ACADEMIC YEAR
Concentration
EXAM TITLE Financial Management — Multiple Attempt TOTAL QUESTIONS 60 Questions
Study Guide
COURSE TITLE Financial Management · Valuation · Capital FORMAT Multiple Choice / Calculations / True-False —
Budgeting · Markets · Regulation Select the Single Best Answer
STUDY GUIDE INSTRUCTIONS
▸ Questions cover financial statements, time value of money, bond/stock valuation, capital budgeting, WACC, and regulatory
frameworks.
▸ Calculation-based questions require precise use of financial calculator inputs.
▸ Select the single best answer for each question based on the WGU C214 Financial Management curriculum.
▸ Correct answers and detailed rationales appear below each question for comprehensive OA preparation.
FINANCIAL STATEMENTS · T VM · VALUATION · CAPITAL BUDGETING · WACC Questions 1 –
· REGULATION 60
1. What standards are used to help US investors understand and compare foreign financial statements to domestic
financial statements?
A. Generally Accepted Accounting Principles (GAAP)
B. International Financial Reporting Standards (IFRS)
C. Sarbanes-Oxley Act provisions
D. SEC Regulation S-X
CORRECT ANSWER B. International Financial Reporting Standards (IFRS)
RATIONALE IFRS provides a global framework for financial reporting, enabling US investors to compare foreign companies'
financial statements with domestic ones prepared under GAAP. While the US uses GAAP domestically, IFRS
facilitates cross-border investment analysis by standardizing accounting treatments internationally.
,2. When a company is optimizing its resources and maintaining or improving productivity, they are engaging in what
hypothesis?
A. Signaling Hypothesis
B. Efficient Market Hypothesis
C. Pecking Order Hypothesis
D. Trade-Off Hypothesis
CORRECT ANSWER B. Efficient Market Hypothesis
RATIONALE The Efficient Market Hypothesis (EMH) states that asset prices fully reflect all available information. Firms
optimizing resources and maintaining productivity contribute to market efficiency. EMH suggests that consistently
outperforming the market through stock selection or market timing is extremely difficult because prices already
incorporate relevant data.
3. What is the basic type of negotiable debt?
A. Common stock
B. Preferred stock
C. Bonds
D. Warrants
CORRECT ANSWER C. Bonds
RATIONALE Bonds are the fundamental form of negotiable debt—they can be bought and sold in secondary markets. They
represent a contractual obligation to repay principal with interest. Stocks represent equity ownership, not debt.
Warrants are derivatives giving the right to purchase stock.
4. What is the characteristic of a stock sold in the secondary markets?
A. It is sold directly by the issuing company
B. It is traded after the initial offering
C. It requires SEC registration for each trade
D. It can only be sold to accredited investors
CORRECT ANSWER B. It is traded after the initial offering
RATIONALE Secondary markets (NYSE, NASDAQ) facilitate trading of already-issued securities between investors. The issuing
company receives no proceeds from secondary trades—only from the initial primary offering (IPO). This liquidity is
essential for price discovery and investor confidence.
5. If a company successfully lobbies for tariffs and trade restrictions, what are the two principal impacts?
A. Lower consumer prices and increased competition
B. Protection for the lobbyist and higher prices for the consumer due to reduced competition
C. Increased exports and stronger currency
D. Reduced government revenue and higher employment
CORRECT ANSWER B. Protection for the lobbyist and higher prices for the consumer due to reduced competition
RATIONALE Tariffs protect domestic industries from foreign competition, benefiting the lobbyist's firm. However, reduced
competition allows domestic producers to charge higher prices, harming consumers. Tariffs are a classic example
of concentrated benefits (to the protected industry) and diffuse costs (to consumers).
, 6. Describe an income statement in one sentence.
A. It shows assets, liabilities, and equity at a point in time
B. It covers a period of time and starts with sales, takes out expenses, and ends with net income
C. It reconciles beginning and ending cash balances
D. It lists all financing and investing activities
CORRECT ANSWER B. It covers a period of time and starts with sales, takes out expenses, and ends with net income
RATIONALE The income statement (P&L) reports financial performance over a period (quarter, year): Revenues − Expenses =
Net Income. It is a flow statement, contrasting with the balance sheet (point-in-time snapshot). The income
statement and cash flow statement both cover periods.
7. What is the difference between taxable income and accounting income?
A. They are always identical
B. Accounting income is net income on the income statement; taxable income determines tax liability
C. Taxable income is always higher than accounting income
D. Accounting income is only used for SEC filings
CORRECT ANSWER B. Accounting income is net income on the income statement; taxable income determines tax liability
RATIONALE Accounting income (book income) follows GAAP with significant managerial discretion (depreciation methods,
revenue recognition). Taxable income follows IRS rules with fewer choices. Differences arise from permanent
differences (tax-exempt interest) and temporary differences (depreciation timing), creating deferred tax
assets/liabilities.
8. Given: Net Income $15,000, Depreciation $2,000, Change in Operating Assets $1,200, Change in PP&E $2,000, Change in
long-term liabilities $1,200, Dividends paid $1,500. What is Cash Flow from Financing?
A. $1,200
B. −$300
C. $1,500
D. −$1,200
CORRECT ANSWER B. −$300
RATIONALE CFF = Increase in Stock + Increase in Debt − Dividends Paid. Here, the change in long-term liabilities (debt) is
+$1,200 and dividends paid are $1,500. No stock issuance is indicated. CFF = $1,200 − $1,500 = −$300. Changes in
operating assets and PP&E affect CFO and CFI, not CFF.
★ ★
Western Governors University
WGU Michael O. Leavitt School of Business
A NEW KIND OF U.
EST. 1997
C214 — Financial Management: Multiple Attempt Study Guide
K E Y CO N C E PTS · C A LCU L AT I O N S · F I N A N C I A L STAT E M E N TS · VA LU AT I O N · C A P I TA L B U D G E T I N G
INSTITUTION Western Governors University COURSE CODE C214
PROGRAM BS Business Administration · Finance ACADEMIC YEAR
Concentration
EXAM TITLE Financial Management — Multiple Attempt TOTAL QUESTIONS 60 Questions
Study Guide
COURSE TITLE Financial Management · Valuation · Capital FORMAT Multiple Choice / Calculations / True-False —
Budgeting · Markets · Regulation Select the Single Best Answer
STUDY GUIDE INSTRUCTIONS
▸ Questions cover financial statements, time value of money, bond/stock valuation, capital budgeting, WACC, and regulatory
frameworks.
▸ Calculation-based questions require precise use of financial calculator inputs.
▸ Select the single best answer for each question based on the WGU C214 Financial Management curriculum.
▸ Correct answers and detailed rationales appear below each question for comprehensive OA preparation.
FINANCIAL STATEMENTS · T VM · VALUATION · CAPITAL BUDGETING · WACC Questions 1 –
· REGULATION 60
1. What standards are used to help US investors understand and compare foreign financial statements to domestic
financial statements?
A. Generally Accepted Accounting Principles (GAAP)
B. International Financial Reporting Standards (IFRS)
C. Sarbanes-Oxley Act provisions
D. SEC Regulation S-X
CORRECT ANSWER B. International Financial Reporting Standards (IFRS)
RATIONALE IFRS provides a global framework for financial reporting, enabling US investors to compare foreign companies'
financial statements with domestic ones prepared under GAAP. While the US uses GAAP domestically, IFRS
facilitates cross-border investment analysis by standardizing accounting treatments internationally.
,2. When a company is optimizing its resources and maintaining or improving productivity, they are engaging in what
hypothesis?
A. Signaling Hypothesis
B. Efficient Market Hypothesis
C. Pecking Order Hypothesis
D. Trade-Off Hypothesis
CORRECT ANSWER B. Efficient Market Hypothesis
RATIONALE The Efficient Market Hypothesis (EMH) states that asset prices fully reflect all available information. Firms
optimizing resources and maintaining productivity contribute to market efficiency. EMH suggests that consistently
outperforming the market through stock selection or market timing is extremely difficult because prices already
incorporate relevant data.
3. What is the basic type of negotiable debt?
A. Common stock
B. Preferred stock
C. Bonds
D. Warrants
CORRECT ANSWER C. Bonds
RATIONALE Bonds are the fundamental form of negotiable debt—they can be bought and sold in secondary markets. They
represent a contractual obligation to repay principal with interest. Stocks represent equity ownership, not debt.
Warrants are derivatives giving the right to purchase stock.
4. What is the characteristic of a stock sold in the secondary markets?
A. It is sold directly by the issuing company
B. It is traded after the initial offering
C. It requires SEC registration for each trade
D. It can only be sold to accredited investors
CORRECT ANSWER B. It is traded after the initial offering
RATIONALE Secondary markets (NYSE, NASDAQ) facilitate trading of already-issued securities between investors. The issuing
company receives no proceeds from secondary trades—only from the initial primary offering (IPO). This liquidity is
essential for price discovery and investor confidence.
5. If a company successfully lobbies for tariffs and trade restrictions, what are the two principal impacts?
A. Lower consumer prices and increased competition
B. Protection for the lobbyist and higher prices for the consumer due to reduced competition
C. Increased exports and stronger currency
D. Reduced government revenue and higher employment
CORRECT ANSWER B. Protection for the lobbyist and higher prices for the consumer due to reduced competition
RATIONALE Tariffs protect domestic industries from foreign competition, benefiting the lobbyist's firm. However, reduced
competition allows domestic producers to charge higher prices, harming consumers. Tariffs are a classic example
of concentrated benefits (to the protected industry) and diffuse costs (to consumers).
, 6. Describe an income statement in one sentence.
A. It shows assets, liabilities, and equity at a point in time
B. It covers a period of time and starts with sales, takes out expenses, and ends with net income
C. It reconciles beginning and ending cash balances
D. It lists all financing and investing activities
CORRECT ANSWER B. It covers a period of time and starts with sales, takes out expenses, and ends with net income
RATIONALE The income statement (P&L) reports financial performance over a period (quarter, year): Revenues − Expenses =
Net Income. It is a flow statement, contrasting with the balance sheet (point-in-time snapshot). The income
statement and cash flow statement both cover periods.
7. What is the difference between taxable income and accounting income?
A. They are always identical
B. Accounting income is net income on the income statement; taxable income determines tax liability
C. Taxable income is always higher than accounting income
D. Accounting income is only used for SEC filings
CORRECT ANSWER B. Accounting income is net income on the income statement; taxable income determines tax liability
RATIONALE Accounting income (book income) follows GAAP with significant managerial discretion (depreciation methods,
revenue recognition). Taxable income follows IRS rules with fewer choices. Differences arise from permanent
differences (tax-exempt interest) and temporary differences (depreciation timing), creating deferred tax
assets/liabilities.
8. Given: Net Income $15,000, Depreciation $2,000, Change in Operating Assets $1,200, Change in PP&E $2,000, Change in
long-term liabilities $1,200, Dividends paid $1,500. What is Cash Flow from Financing?
A. $1,200
B. −$300
C. $1,500
D. −$1,200
CORRECT ANSWER B. −$300
RATIONALE CFF = Increase in Stock + Increase in Debt − Dividends Paid. Here, the change in long-term liabilities (debt) is
+$1,200 and dividends paid are $1,500. No stock issuance is indicated. CFF = $1,200 − $1,500 = −$300. Changes in
operating assets and PP&E affect CFO and CFI, not CFF.
