WGU - C214 FINANCIAL
MANAGEMENT – FINAL EXAM
QUESTIONS & ANSWERS(RATED A+)
Statement of Cash Flows - ANSWER Shows the change in cash balance for a period of
time. Focuses only on items where cash is received, or cash is paid.
Cash Flow from Operating Activities (CFO) - ANSWER Cash flow that a company
generates as a result of day-to-day business operations. Deals with Current Assets and
Current Liabilities.
Cash Flow from Investing Activities (CFI) - ANSWER Cash flow that is generated from
investments in long term assets.
Cash Flow from Financing Activities (CFF) - ANSWER Cash flow that is used to fund
the company. Cash flow that is generated from financing the business. Includes Debt &
Equity.
How does an increase in Accounts receivable impact CFO? - ANSWER An Increase in
Accounts receivable will decrease CFO
How does an increase in Accounts payable impact CFO? - ANSWER An Increase in
Accounts Payable will increase CFO
What financial statement is prepared at a point in time - ANSWER Balance Sheet
What financial statements are prepared for a period of time? - ANSWER · Income
Statement
· Retained Earnings Statement
· Statement of Cash Flows
Define Efficient Frontier - ANSWER Maximizes expected return for a given level of risk
Where would a risk averse investor fall on the efficient frontier? - ANSWER 100%
Bonds
Where would a risk-taking investor fall on the efficient frontier? - ANSWER 100% Stocks
What is a Beta? - ANSWER A Measure of Risk - A Beta 1 is the average risk of all
stocks. Anytime a beta is below 1, it is less risk. If it is more than 1, it is high risk.
, Define efficient market hypothesis as it relates to a firm? - ANSWER For any company
to survive, they need to make profitable decisions. Otherwise, investors will shun their
business. The firm needs to invest where the return is more than the cost.
What is the intrinsic value of a stock under efficient market hypothesis? - ANSWER The
intrinsic value of stock is the present value of the stock's after tax net cash flows.
Whenever the question states that dividend was paid recently or was just paid, what
must be calculated first? - ANSWER Expected Dividend
Define WACC - ANSWER Weighted Average Cost of Capital. The WACC is the
weighted average of the various costs of equity and costs of debt.
How does a rating downgrade/upgrade impact the cost of capital? - ANSWER A positive
credit rating lowers the cost of capital and a negative credit rating increases the cost of
capital.
Define DFN - ANSWER Discretionary Financing Needed. The difference between total
assets and total liabilities and owner's equity is referred to as discretionary financing
needed. In other words, this is the amount of discretionary financing that the firm thinks
it will need to raise in the next year.
What is the risk posed by excessive debt? - ANSWER Excessive debt can lead to a
company not able to meet its financial obligations to pay back liabilities or result in
potential bankruptcy.
What is the relationship between increases or decreases in sales revenue and
increases or decreases in EBIT? - ANSWER There is a direct relationship between
sales revenue and EBIT. Any change in sales will magnify EBIT in either direction. If
there is an increase in sales revenue EBIT will go up. If there is a decrease in sales
revenue, EBIT will go down.
How do firms manage working capital? - ANSWER Try to collect funds as quickly from
customers as possible and pay bills as slowly as possible.
What ratios are used to determine effective working capital management? - ANSWER -
Current Ratio
- Cash Ratio
- Receivables Turnover Ratio
Name two basic types of financial instruments? - ANSWER Stocks and Bonds
What are Primary Markets? - ANSWER Where companies sell securities directly to
investors
MANAGEMENT – FINAL EXAM
QUESTIONS & ANSWERS(RATED A+)
Statement of Cash Flows - ANSWER Shows the change in cash balance for a period of
time. Focuses only on items where cash is received, or cash is paid.
Cash Flow from Operating Activities (CFO) - ANSWER Cash flow that a company
generates as a result of day-to-day business operations. Deals with Current Assets and
Current Liabilities.
Cash Flow from Investing Activities (CFI) - ANSWER Cash flow that is generated from
investments in long term assets.
Cash Flow from Financing Activities (CFF) - ANSWER Cash flow that is used to fund
the company. Cash flow that is generated from financing the business. Includes Debt &
Equity.
How does an increase in Accounts receivable impact CFO? - ANSWER An Increase in
Accounts receivable will decrease CFO
How does an increase in Accounts payable impact CFO? - ANSWER An Increase in
Accounts Payable will increase CFO
What financial statement is prepared at a point in time - ANSWER Balance Sheet
What financial statements are prepared for a period of time? - ANSWER · Income
Statement
· Retained Earnings Statement
· Statement of Cash Flows
Define Efficient Frontier - ANSWER Maximizes expected return for a given level of risk
Where would a risk averse investor fall on the efficient frontier? - ANSWER 100%
Bonds
Where would a risk-taking investor fall on the efficient frontier? - ANSWER 100% Stocks
What is a Beta? - ANSWER A Measure of Risk - A Beta 1 is the average risk of all
stocks. Anytime a beta is below 1, it is less risk. If it is more than 1, it is high risk.
, Define efficient market hypothesis as it relates to a firm? - ANSWER For any company
to survive, they need to make profitable decisions. Otherwise, investors will shun their
business. The firm needs to invest where the return is more than the cost.
What is the intrinsic value of a stock under efficient market hypothesis? - ANSWER The
intrinsic value of stock is the present value of the stock's after tax net cash flows.
Whenever the question states that dividend was paid recently or was just paid, what
must be calculated first? - ANSWER Expected Dividend
Define WACC - ANSWER Weighted Average Cost of Capital. The WACC is the
weighted average of the various costs of equity and costs of debt.
How does a rating downgrade/upgrade impact the cost of capital? - ANSWER A positive
credit rating lowers the cost of capital and a negative credit rating increases the cost of
capital.
Define DFN - ANSWER Discretionary Financing Needed. The difference between total
assets and total liabilities and owner's equity is referred to as discretionary financing
needed. In other words, this is the amount of discretionary financing that the firm thinks
it will need to raise in the next year.
What is the risk posed by excessive debt? - ANSWER Excessive debt can lead to a
company not able to meet its financial obligations to pay back liabilities or result in
potential bankruptcy.
What is the relationship between increases or decreases in sales revenue and
increases or decreases in EBIT? - ANSWER There is a direct relationship between
sales revenue and EBIT. Any change in sales will magnify EBIT in either direction. If
there is an increase in sales revenue EBIT will go up. If there is a decrease in sales
revenue, EBIT will go down.
How do firms manage working capital? - ANSWER Try to collect funds as quickly from
customers as possible and pay bills as slowly as possible.
What ratios are used to determine effective working capital management? - ANSWER -
Current Ratio
- Cash Ratio
- Receivables Turnover Ratio
Name two basic types of financial instruments? - ANSWER Stocks and Bonds
What are Primary Markets? - ANSWER Where companies sell securities directly to
investors
