Western Governors University
WEIVER • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214
F I N A N C I A L M A N A G E M E N T · CO R E CO N C E PTS & E X A M R E V I E W
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Core Concepts Review TOTAL QUESTIONS 40 Questions
SUBJECT AREAS Statements · TVM · Bonds · Stocks · WACC · FORMAT Multiple Choice & True/False — Select the
Capital Budgeting · Ratios Single Best Answer
CORE CONCEPTS REVIEW INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, time value of money, bond/stock valuation, WACC, capital budgeting, ratios, working
capital, and regulations.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — CORE CONCEPTS & EXAM REVIEW Questions 1 – 40
1. The goal of the corporation is to:
A. Maximize profits at all costs
B. Maximize stock price
C. Minimize operating expenses
D. Maximize market share
CORRECT ANSWER B — Maximize stock price
RATIONALE The primary goal of a corporation is to MAXIMIZE SHAREHOLDER VALUE (stock price). This considers both risk
and return over the long term. Maximizing profits alone ignores risk, timing, and can lead to short-term
decisions that destroy value. A firm should AVOID investments with negative NPV. To maximize stock price
long-term, a firm must balance risk and return. Shareholder equity is necessary for a firm's viability. The four
principles of financial decision-making: Efficient Markets, Risk Aversion, Time Value of Money, and
Uncertainty.
, 2. What is the relationship between risk and required return?
A. As risk increases, required return decreases
B. There is no relationship
C. As risk increases, required return increases
D. Risk only affects bonds, not stocks
CORRECT ANSWER C — As risk increases, required return increases
RATIONALE The RISK-RETURN TRADE-OFF is fundamental: investors demand HIGHER returns to compensate for HIGHER
risk. This is the risk premium — the excess return over the risk-free rate. The required return line is determined
by supply and demand. Beta measures systematic risk: β > 1 = higher risk, higher required return. A bond
downgrade INCREASES required return (and decreases price). Firms with high leverage have more volatile
profits and higher required returns. The market risk premium compensates for SYSTEMATIC risk.
3. Which financial statement reflects a POINT in time rather than a period?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
CORRECT ANSWER B — Balance Sheet
RATIONALE The Balance Sheet is a "snapshot" at a POINT in time (e.g., "as of December 31, 2023"). The other three
statements cover a PERIOD of time. Assets = Liabilities + Equity is the foundation for all financial accounting.
Equity = Assets − Liabilities. Current assets (operating assets) include A/R, inventory, prepaid expenses.
Current liabilities (operating liabilities) include A/P, salaries payable, accrued expenses. Short-term assets are
converted to cash within one year; long-term assets are held longer. Short-term liabilities are paid within one
year; long-term liabilities are due beyond one year.
4. What is included in the income statement but NOT in the Statement of Cash Flows?
A. Revenue
B. Depreciation Expense
C. Net Income
D. Operating Expenses
CORRECT ANSWER B — Depreciation Expense
RATIONALE Depreciation is the ONLY expense for which cash is never paid — it is a non-cash charge. On the Income
Statement, depreciation reduces Net Income. On the Statement of Cash Flows, depreciation is ADDED BACK to
Net Income because it was never a cash outflow. This is why depreciation expense appears on the Income
Statement but NOT as a cash outflow on the Statement of Cash Flows. Net PPE + Accumulated Depreciation =
Gross PPE. Depreciation expense and addition to Retained Earnings are added to the Balance Sheet. CFO =
Net Income + Depreciation − Changes in Working Capital.
WEIVER • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214
F I N A N C I A L M A N A G E M E N T · CO R E CO N C E PTS & E X A M R E V I E W
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Core Concepts Review TOTAL QUESTIONS 40 Questions
SUBJECT AREAS Statements · TVM · Bonds · Stocks · WACC · FORMAT Multiple Choice & True/False — Select the
Capital Budgeting · Ratios Single Best Answer
CORE CONCEPTS REVIEW INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, time value of money, bond/stock valuation, WACC, capital budgeting, ratios, working
capital, and regulations.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — CORE CONCEPTS & EXAM REVIEW Questions 1 – 40
1. The goal of the corporation is to:
A. Maximize profits at all costs
B. Maximize stock price
C. Minimize operating expenses
D. Maximize market share
CORRECT ANSWER B — Maximize stock price
RATIONALE The primary goal of a corporation is to MAXIMIZE SHAREHOLDER VALUE (stock price). This considers both risk
and return over the long term. Maximizing profits alone ignores risk, timing, and can lead to short-term
decisions that destroy value. A firm should AVOID investments with negative NPV. To maximize stock price
long-term, a firm must balance risk and return. Shareholder equity is necessary for a firm's viability. The four
principles of financial decision-making: Efficient Markets, Risk Aversion, Time Value of Money, and
Uncertainty.
, 2. What is the relationship between risk and required return?
A. As risk increases, required return decreases
B. There is no relationship
C. As risk increases, required return increases
D. Risk only affects bonds, not stocks
CORRECT ANSWER C — As risk increases, required return increases
RATIONALE The RISK-RETURN TRADE-OFF is fundamental: investors demand HIGHER returns to compensate for HIGHER
risk. This is the risk premium — the excess return over the risk-free rate. The required return line is determined
by supply and demand. Beta measures systematic risk: β > 1 = higher risk, higher required return. A bond
downgrade INCREASES required return (and decreases price). Firms with high leverage have more volatile
profits and higher required returns. The market risk premium compensates for SYSTEMATIC risk.
3. Which financial statement reflects a POINT in time rather than a period?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
CORRECT ANSWER B — Balance Sheet
RATIONALE The Balance Sheet is a "snapshot" at a POINT in time (e.g., "as of December 31, 2023"). The other three
statements cover a PERIOD of time. Assets = Liabilities + Equity is the foundation for all financial accounting.
Equity = Assets − Liabilities. Current assets (operating assets) include A/R, inventory, prepaid expenses.
Current liabilities (operating liabilities) include A/P, salaries payable, accrued expenses. Short-term assets are
converted to cash within one year; long-term assets are held longer. Short-term liabilities are paid within one
year; long-term liabilities are due beyond one year.
4. What is included in the income statement but NOT in the Statement of Cash Flows?
A. Revenue
B. Depreciation Expense
C. Net Income
D. Operating Expenses
CORRECT ANSWER B — Depreciation Expense
RATIONALE Depreciation is the ONLY expense for which cash is never paid — it is a non-cash charge. On the Income
Statement, depreciation reduces Net Income. On the Statement of Cash Flows, depreciation is ADDED BACK to
Net Income because it was never a cash outflow. This is why depreciation expense appears on the Income
Statement but NOT as a cash outflow on the Statement of Cash Flows. Net PPE + Accumulated Depreciation =
Gross PPE. Depreciation expense and addition to Retained Earnings are added to the Balance Sheet. CFO =
Net Income + Depreciation − Changes in Working Capital.
