WGU C214 Pre-Assessment Questions With Correct Answers

How can a private firm appropriately maximize shareholder value? - AnswerBy making decisions that keep the control of the business with the owners Why are American regulators focused on international investing in a global marketplace? - AnswerBecause international investing in a global marketplace is the concern of American investors What is one of the two basic types of financial instruments? - AnswerBonds If a company outsources the manufacturing of its products to a foreign country, what are the likeliest outcomes? - AnswerConsumer prices will decrease and Domestic employment will decrease. What is true about the content and structure of a balance sheet? - AnswerIt reports the assets, liabilities, and equity at a point in time. A company reported an increase in accounts receivable of $5,000 during the recent period. Half of this amount is expected to be collected next period. How will this change in accounts receivable affect the cash flows from the operating activities section? - AnswerThe change will decrease cash flows from operations by $5,000. Which statement accurately explains the recognition of revenues and expenses under accounting income and income for tax purposes? - AnswerRevenues and expenses may be recognized in one period for accounting income purposes and in a different period for income tax purposes. Selected Data for 20x2 for ABD Inc. Netincome $ 1,000 Depreciation expense $ 300 Change in operating assets $ 600 Change in net property, plant, and equipment$ 5,000 Changes in long-term liabilities $ 1,000 Dividends paid $ 200 What is the firm's cash flow from investments, using the data above and assuming no asset disposals? - Answer$5,300 outflow What is the basic equation for a balance sheet? - AnswerAssets = Liabilities + Equity What do cash flows from investing activities generally relate to? - AnswerA firm's purchase and sale of long-term assets Which transaction is reflected in cash flow from operating activities? - AnswerCash sales to customers What does free cash flow represent? - AnswerCash available for distribution after funding required reinvestment An analyst is comparing the ratios of two firms and needs to address timing differences. What would be considered an example of a timing difference between the two firms? - AnswerThe firms have different fiscal years. A company's year-end balance sheetfor 2013 shows the following: Accounts receivable: $900 Inventory: $1200 Fixed assets: $1000 Accounts payable: $1300 Sales: $4000 Salaries expense: $275 What is their fixed asset turnover ratio? - Answer4.0 A firm has a ROE (return on equity) of 0.27 and the industry average ROE is 0.24. Which conclusion would an analyst draw when comparing the firm to the industry? - AnswerThe firm is generating higher returns to owners than the industry. What must have taken place for a firm to recognize revenue, in order for the firm to comply with the accrual accounting rules? - AnswerThe product must have been delivered. A teacher won $100,000 and invests this money for 5 years at an interest rate of 4% (compounded annually). How much will the teacher have in principal and interest at the end of the 5 years? - Answer$121,665 An accountantis 40 years old with an anticipated retirement age of 70 years old. The accountant plans to save $6,000 per year at the end of the next 30 years to fund retirement. - Answer$336,510 An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest bearing account. The last cash flow is received 1 year prior to the end ofthe tenth year. What is the investor's future balance after 10 years? - Answer$24,973 What is the par value (face value) of a bond? - AnswerThe sum of money that the corporation promises to pay upon expiration of the bond. A broker is considering purchasing common stock in a company that has average but consistent operating performance. Which factor should lead the broker to purchase shares in this company? - AnswerThe current price of the stock is 25% below its intrinsic value. A broker is considering buying a dividend-paying stock. The dividend will be paid atthe end of the year. The analyst consensus is the stock will be worth $36 in one year. The company pays a $2.25 annual dividend (ex dividend date is not a consideration,the broker will receive the full $2.25), and the broker expects a 12% rate of return What is the highest price the broker should be willing to pay for the stock? - Answer$34.15 A person buys shares of a company at $45. They recently paid a $2 annual dividend which is expected to grow by 10% per year. What is the expected return per year? - Answer14.9% Which investment option is less desirable for a prudent investor? - AnswerQuadrant 4, bottom left, 3/4 to right side. Also E. for answer. The market rate of return is 9%. The face value ofthe bond is $1000,the coupon rate is 9% with annual compounding, and the bond matures in 10 years. What is the value of the bond? - Answer$1,000 Which statement is true about fluctuations in bond prices? - AnswerWhen the market interest rates fluctuate, the required rate of return equals the bond coupon rate. A company issues bonds at a market price of $925. The face value is $1,000. The bonds mature in 10 years, and the coupon rate is 6% compounded semiannually. What is the yield to maturity (YTM) on the company's bonds? - Answer7.06% Which securities are issued by local governments and are usually tax exempt at the federal level? - AnswerMunicipal bonds A bond pays $27.50 semiannually, matures in 9 years, and is currently priced at $1,090. What is the yield to maturity for this bond? - Answer4.28% A bond that matures in 30 months is sold at a premium. What is the yield to maturity (YTM)? - AnswerLower than the coupon rate Why does a long-term bond resemble an interest-only loan? - AnswerNone of the principle is repaid until the bond matures. Under which circumstances will annual percentage yield (APY) be greater than the annual percentage rate (APR)? - AnswerAny time the number of compounding periods is greater than annual. What is the difference between a common stock and a preferred stock? - AnswerSkipping a declared preferred stock dividend results in dividends in arrears. Which happens to the risk level in a portfolio as the number of assets in the portfolio increases? - AnswerRisk decreases at a slower rate. Where along this line will a highly risk-averse investor likely fall? - AnswerC1 - Three up vertical on the graph curve and also that would be on the most arched part of the graph. What are two primary benefits of the capital asset pricing model (CAPM)? - AnswerCAPM provides a way to determine the expected return for stocks. & CAPM provides a way to estimate the required return. A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt 6%, a cost of preferred