WGU C214 Financial Management OA Study Set Questions and Answers 2023

WGU C214 Financial Management OA Study Set Questions and Answers 2023 Trading on the NYSE is executed without a specialist (i.e. a market maker). True or False? False Stocks and Bonds are two types of financial instruments. True or False? True When revenue is matched with cost of sales in an Income statement it is called? Matching principle Basic balance sheet equation is what? Equity = Assets - Liabilities Why is the balance sheet known as the permanent statement? Because the other statements are reset at the end of the fiscal year. How do you calculate the change in retained earnings? Net income-dividends Sales - Cost of Sales - other expenses = Operating Income or EBiT Name four accounts that are part of total assets? Cash, Accounts receivable, inventory, long term assets Name three accounts that are part of total liabilities? Bonds, accounts payable and mortgage Name four accounts that are part of current assets? Inventory, cash, accounts receivable and short term investments. Name three accounts that are only included in cash flow from financing? Common stock, dividends paid and bonds payable Define the statement of cash flows? Calculated for the same period of time as the incomes statement is calculated based on the income statement and changes in the balance sheet is one of the three basic accounting statements. When fixed assets increase what happens to cash? Cash will decrease What is the purpose of the statement of cash flows? Explains the change in cash over the course of the specified time frame. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? The firm has too little inventory resulting in lost sales or stock-outs. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? Higher The Operating Income Return on Investment (OIROI) uses what elements on the income statement? EBIT and total assets Why would a company be interested in the Total Asset Turnover (TAT) ratio? To see how efficient are at producing sales What annual interest will be paid for a zero coupon bond? 0% What is the most significant characteristic of subordinated debt? Senior debt is paid off first If a company wants to increase its debt capital, how will they raise the funds? Sell bonds What is the lowest level investment bond BBB What can cause the bond price to fluctuate? A change in the bond rating, a change in the financial condition, general change in interest rates. What does a company use as security for a bond? Credit worthiness Under the efficient market hypothesis, what will companies endeavor to do? Maximize profits for a given level of risk What does the beta coefficient represent? It is a statistically derived measure of volatility. If an investor knows the idiosyncratic risk, the investor knows the? Beta Coefficient Why is the depreciation expense taken out of the net income calculation, yet added back at the end? Because depreciation expense is tax deductible. Why would we reject a project based on NPV? The NPV is a negative number Why would we reject a project based on IRR? The discount rate is higher than the IRR What are two key elements of differential cash flow? Depreciation expense and net income Why is the NPV preferred over the IRR? It measures the dollar value and is more reliable. When a company uses more leverage as evidenced by a higher degree of either financial or operating leverage, what effect does it have on changes in profitability? Higher leverage leads to higher profitability for a given sale level. What does the degree of financial leverage indicate? The reliance on debt If a company has a high degree of financial leverage, what does that tell us about the firms risk profile? Financial leverage also means that more financing is done through debt, not equity. Higher profits to shareholders. What is the cash cycle? The amount of time to regenerate cash. Why is float important to understand? To time cash expenditures What should a company do to manage its working capital? Collect quickly and pay slowly Name what characterizes increased collection float? Increased float indicates slower processing time. In regards to Accounts Payable Balances, what is a good policy? Paying off A/P on the last day due is a good policy. What would be a good source of information to determine replacement cost? Building Appraisal Dodd-Frank Act regulates which segment of the U.S economy? Banking industry What is the regulatory body that overseas the systematic risk in banking? Financial stability oversight council The SEC securities and Exchange Commission requires companies to do the following three things: Register all public offerings, regulate stock sales and ensure transparency through uniform reporting. What does the Sarbanes-Oxley Act require companies to do? Have internal control audits, senior management responsible for signing off on statements and places restrictions on auditors. Financial Industry Regulatory Authority (FINRA) does the following? Licenses stock brokers and audits brokerage firms. If a product is made 100% domestically, what can affect its domestic market? International competition If a company makes a product in a foreign country where labor costs are much lower, what happens? Profits go up and domestic employment decreases. If the value of a dollar increases, the price of imports does what? Decreases Why would a farmer buy a hedge when he signs a contract to sell products oversees? To reduce currency risk The goal of a corporation is to? Minimize risk Which of the following is not a requirement for an efficient market? Liquidity The value of money depends upon? The timing of receipts, certainty of receipt and riskiness of receipt. What is the purpose of the SEC 10-K filing? Prevent monopolies Which line item is not part of net working capital? Bonds Increase in accounts payable, decrease in accounts payable and increase in inventory are examples of cash flow. True/False False Net margin is defined as? Retained earnings / sales Which item is transferred from the income statement to the balance sheet? Depreciation expense and addition to retained earnings What item is added to net income to calculate net cash flow? Depreciation expense Which cash flow statement represents cash earned by producing and selling the product? Cash flow operations Which ratio reflects a firms reliance on debt financing? Financial leverage Which action causes a cash outflow? Increase in inventory If two firm use different money valuation methods, it is called? Accounting Difference What thee things affect the required return on a security? Perceived riskiness Financial decisions of the firm Trading in financial markets Which is the most frequent type of transaction in financial markets? Secondary markets Which of the 5 white financial function keys represents a series of cash disbursements? PMT If payments are made semi-annually, which key inputs must be adjusted? PMT, I/Y and N Which can be defined as change in value of cash over time? Interest rate, inflation rate, and discount rate