WGU C214 Finance Management Concepts Final Exam 2022/2023 Accurately Completed
WGU C214 Finance Management Concepts Final Exam
1. The stock price
... [Show More] of a company increases and the market is deemed efficient. What assumption can be made? A. A new, patented, product was introduced to the market.
B. New machinery was purchased with a useful life of 20 years.
C. Management is optimizing its resources and operating efficiently.
D. Management hired new employees and invested in a training program.
2. Which statement is true about how the global market affects the U.S.
A. A bad options trade executed by a foreign subsidiary of a Wall Street bank will affect layoffs overseas.
B. A Bad derivatives trade executed by a foreign subsidiary of a Wall Street bank will affect layoffs overseas.
C. American investors and fund managers make decisions based on financial reporting standards developed and financial statements audited overseas.
D. Foreign investors and fund managers make decisions based on financial reporting standards developed and financial statements audited overseas.
3. What are secondary markets?
A. Markets where securities are traded subsequent to the initial offering.
B. Markets were securities are issued for the first time.
C. Markets were securities are issued through a competitive sale.
D. Markets where securities are issued through a negotiated sale.
4. A special interest group in the U.S. has been lobbying intensely for protectionism through increased tariffs and trade restrictions, with the argument that it will save jobs in the industry they represent. What is the most likely result if they are successful?
A. Employees and shareholders of the domestic industry that produce the protective goods will be hurt and the nation will benefit.
B. The overall economy will benefit from trade restrictions and tariffs.
C. Removing the trade restrictions and tariffs will result in a net economic loss to the overall U.S. economy.
D. Employees and shareholders of the domestic industry that produce the protected goods will benefit and the nation will be hurt.
5. What do the content and structure of a balance sheet report?
The assets , liabilities , and equity at a point in time
6. What is the basis used to compute a company's income tax expense?
A. Pretax accounting income.
B. Taxable income.
C. Net operating income. D. Taxes payable.
7. What is the firm’s cash flow from financing, using the data above?
Net Income $1000
Depreciation Expense $300 Change in operating assets $600 Change in net PP&E $5000 Change in long-term Liabilities $1000 Dividends Paid $200
A. $200 outflow
B. $800 outflow C. $800 inflow
D. $1,000 inflow
8. A company reported an increase in accounts payable of $2000 for the current year. Half of this amount is expected to be paid next period.
How will this change in accounts payable be reported on the statement of cash flows?
A. The change will increase cash flow from operations by $1000
B. The change will decrease cash flows from operations by $2,000
C. The change will decrease cash flows from operations by $1000 D. The change will increase cash flow from operations by $2000
9. A company's trial balance shows $900 in long-term debt. On which financial statement should this be shown? E. The balance sheet
10. What do cash flows from financing activities generally relate to?
A. A firm's purchase and sale of long-term assets
B. A firm's non-cash transactions
C. A firms' debt and equity transactions
D. A firms sale of goods and services
11. What is true about the cash flow from the operating activities section of the statement of cash flows?
A. Increases in current liability accounts represents an inflow of cash and should be added to net income
B. Decreases in current liability accounts represent an outflow of cash and should be added to net income
C. Increases in current liability accounts represent an outflow of cash and should be subtracted from net income
D. Decreases in current liability accounts represent an inflow of cash and should be added to net income
12. Partial financial data for a company is as follows. EBIT $250,000
Depreciation $10,000
Change in working capital $2,000 Net capital expenditures $3,000 Tax rate 30%
What is the company’s free cash flow? A. $255,000
B. $178,000
C. $180,000
D. $265,000
13. An analyst is comparing the ratios of two firms and needs to address accounting differences. What would be considered an accounting difference between the two firms?
A. The firms have different auditors
B. The firms use different inventory methods
C. The firms have different fiscal years
D. The firms are in different industries
14. A company’s year end balance sheet shows the following financial data.
AR $200
Inventory $700 Fixed assets $500 Acct’s payable $500
Long term debt $1000
What is the company’s current ratio?
15. Firms A and B are in the same industry. For the year 2013, Firm A has a gross margin of .45 and Firm B has a gross margin of .36.
Which conclusion would an analyst draw when comparing Firm A to Firm B? A. Firm A has a more efficient production process
B. Firm A has higher depreciation expense
C. Firm A has lower depreciation expense
D. Firm A has less efficient production process
16. What is an example of an estimate used in recording transactions?
A. Deciding whether to expense or depreciate a fixed asset
B. Deciding the salvage value of fixed asset when calculating depreciation expense
C. Deciding the cost of a fixed asset when calculating depreciation expense
D. Deciding whether to sell a fixed asset
17. An investor anticipates receiving $72,000 in 6 years.
Assuming an annual discount rate of 9%, what is the present value of this company? A. $42,616
B. $42,931
C. $60,000
D. $66,055
18. A doctor will receive $9,000 per year (at the end of the year) for 10 years. The annual interest earned on the investment is 6%.
What is the present value of this doctor’s investment? A. $64,240
B. $66,241
C. $90,000
D. $118,627
19. A banker wants to retire 20 years from today and would like to have an annual income of $300,000 withdrawn at the end of each year 10 years starting in exactly 20 years. The discount rate is 6%.
What is the present value, today? A. $688,473
B. $2,208,026
C. $3,000,000
D. $3,441,000
20. What is a subordinated debenture?
A. A bond that is backed by collateral
B. A bond that has a lower claim to the assets of the firm in the event of liquidation
C. A bond that has a higher claim to the assets of the firm in the event of liquidation
D. A bond that is risk free
21. The market rate of return is 6%. The face value of the bond is $1000, the coupon rate is 10% with annual compounding, and the bond matures in 15 years.
What is the value of the bond?
A. $748
B. $1,000
C. $1,248
D. $1,294
22. At what will the bond sell If the coupon rate is higher than the market rate of return?
A. At a premium
B. A the risk-free rate
C. At par
D. At a discount
23. A company issues bonds at a market price of $1,100. The face value is $1000. The bonds mature in 18 years and the coupon rate is 6% compounded annually.
What is the yield to maturity on this company’s bonds? A. 12.46%
B. 10.00%
C. 6.00%
D. 4.72%
24. Which securities are issued by the U.S. Federal government and are taxable at the federal level?
A. Municipal bonds
B. Eurobonds
C. Treasury bonds
D. Corporate bonds
25. A $1,000 bond with a 5% coupon rate matures in 7 years. The expected return is 6%. Assuming annual compounding
What is the current value of the bond? A. $910.92
B. $1,057.86
C. $944.18
D. $1,000.00
26. The current coupon rate on a bond is 6%. And the bond is selling at a 5% discount.
What is the yield to maturity on this bond?
A. Greater than 6%
B. Equal to 5%
C. Equal to 6%
D. Less than 6%
27. What is the difference between a secured loan and an unsecured loan?
A. Secured loans require some form of collateral.
B. Unsecured loans require some form of collateral.
C. Unsecured loans typically have a lower interest rate
D. Secured loans typically have a higher interest rate
28. What is the intrinsic value of a stock?
A. Past market value
B. The future estimated market value
C. The 100-day moving average of the stock price D. Net present value of expected future cash flows
29. A broker purchases a stock that pays a $1.15 annual dividend at a price of $16.00. The broker expects a 15% rate of return.
What is the total actual return if this broker sells this stock after one year for $19.00? A. 15.5%
B. 18.4%
C. 20.2%
D. 25.9%
30. A company recently paid an annual dividend of $2. Dividend growth is expected to be 5%
What is the highest price a person should be willing to pay for one share of this company today if the person’s required return remains at 12%?
A. $21.20
B. $30.00
C. $46.45
D. $55.00
31. The figure below represents the levels of market efficiency.
Which investment option should be selected assuming a prudent investor wants to maximize the expected return E(R)?
A.
B.
C.
D.
E.
32. What is the relationship between annual percentage rate (APR) and annual percentage yield (APY)?
A. The APR will equal the APY if compounding happens more frequently than annually
B. The APR will be less than the APY if compounding happens more frequently than annually
C. The APR will be greater than the APY if compounding happens more frequently than annually
D. The APR will be less than the APY if compounding happens more frequently than annually
33. What is the priority order of repayment (first to last) to a company's investors and creditors?
A. Creditors, common stockholders, preferred stockholders B. Creditors, preferred stockholders, common stockholders
C. Preferred stockholders, creditors, common stockholders
D. Common stockholders, preferred stockholders, creditors
34. A company is planning a new product release. It estimates a 50% probability for a blockbuster result that will ? the price of the stock 30%. The probability the stock will remain unchanged is 25%. There is a probability the stock will drop by 5%
What is the expected return of this new product release? A. 14%
B. 25%
C. 35%
D. 41%
35. Where on the "efficient frontier" is a young investor with a high-risk tolerance likely to fall?
A. A1
B. C1
C. D2 D. D3
36. Supply and demand factors suggest the slope for an individual asset in the portfolio will equal the slope of the market portfolio itself. What is the significance of this equalization?
A. The entire risk-return slope will decrease over time
B. The slope of the individual assets in a portfolio will diverge to increase diversification.
C. Investors will be forced to frequently shift their portfolios D. Investors will be incentivized to hold the market portfolio
37. What are the components required in calculating weighted average cost of capital (WACC)? Choose 3 answers
A. The firm's market value
B. The desired growth rate
C. The market cap of the company
D. The value of preferred stock and debt
E. The amount and required return for common equity, preferred equity and debt F. The marginal tax rate
G. The combined total expected growth rate
38. A company has a total market value of $100 million, $30 million of which is short-term debt. The cost of that short term debt was 4.5%. The company has a marginal tax rate of 40%.
What is the weighted after-tax cost of short-term debt for the company? A. 30.1%
B. 4.5%
C. 1.35%
D. 0.81%
39. Which advantage does the Gordon Growth Model have compared to the capital asset pricing model (CAPM)?
A. It requires assumptions about growth that benefit fast-growing companies
B. It requires the use of accurate known factors, such future as growth rates.
C. It is highly accurate in predicting future growth
D. It provides an easier to understand and relatively accurate forecast when growth rates are stable
40. How does the weighted average cost of capital affect a company's growth opportunities?
A. The higher the cost of capital, the greater the growth opportunities
B. Only the cost of debit will affect growth opportunities
C. The lower the cost of capital, the lower the growth opportunities D. The lower the cost of capital, the greater the growth opportunities
41. A corporation has $125 million in assets on the balance sheet. Total liabilities are $94 million and owner’s equity is currently $14 million.
What is the corporation’s external discretionary financing need (OFN)?
A. $14 million
B. $17 million
C. $32 million
D. $80 million
42. Year 2010 ending retained earnings were $5 million. Year 2011 forecasted net income is $1 million with a 10% dividend payout ratio.
What are the forecasted retained earnings for year 2011? A. $18,000
B. $20,000
C. $5.4 million
D. $5.9 million
43. Projected total assets are $1 million with projected total liabilities of $500,000 and projected owner’s equity of
$100,000.
Which amount of discretionary financing is needed? A. $400,000
B. $600,000
C. $1.4 million
D. $1.6 million
44. Under which three conditions would a firm decide to reduce the growth rate? Choose 3
A. When additional investor capital is not available
B. When customers are dissatisfied with the company's products C. When capacity has been reached
D. When the company's borrowing limits have reached the maximum allowed by the lender
E. When investors are dissatisfied with the dividend payout ratio
45. The financial data for a company is as follows.
Net Income $4,000,000 Sales $20,000,000 Assets $8,000,000 Dividends $2,000,000 Equity $5,000,000 Liabilities $3,000,000
What is the sustainable growth rate for this company? A. 40%
B. 50%
C. 60%
D. 100%
46. A firm is evaluating a new product. If adopted, estimated sales will increase by $14,500,000 per year. Incremental variable and fixed costs are estimated to be $2,350,000. In addition, the new machine has an annual depreciation expense of $1,100,000.
What is the estimated differential cash flow in year 1 if the tax rate is 40%?
A. $6,280,000
B. $6,630,000
C. $7,290,000
D. $7,730,000
47. A company is considering a project with the following cash flows and an ? discount rate of 26%.
Initial outlay ($5,000) Year 1 $3,000
Year 2 $3,500
Year 3 $3,200
Year 4 $2,800
Year 5 $2,500
What should this firm decide based on the net present value (NPV)?
A. Reject the project since the NPV is negative
B. Accept the project since the NPV is negative
C. Reject the project since the NPV is positive
D. Accept the project since the NPV is positive
48. How will the value of a $1,000,000 capital budgeting investment be affected assuming the inflation rate is 2%?
A. The investment will be worth $500,000 in one year
B. The investment will be worth $1,000,000 in one year
C. The investment will be worth $1,020,000 in one year
D. The investment will be worth $1,200,000 in one year
49. What are discretionary accounts?
A. Accounts that increase automatically with sales
B. Accounts that appear only on an income statement
C. Accounts that include current assets
D. Accounts that require management to deliberately increase or decrease
50. A company is replacing an old machine with a new one. This old machine is being sold for $200,000 and has a ? value of $50,000. The tax rate for the firm is 40%.
What are the net proceeds from the sale of this old machine? A. $50,000
B. $140,000
C. $150,000
D. $260,000
51. What is the purpose of the capital budget process?
A. Deciding which projects increase the firm's value
B. Estimating the cost to start a new project
C. Estimating the budget of a new project
D. Budgeting a firm's monthly revenue and expenses
52. Financial data associated with a company is listed below Sales $1,350,000
Variable costs $375,000 Fixed costs $450,000 Interest expense $123,000 Depreciation Expense $0
What is this company’s degree of financial leverage? A. 1.0
B. 1.1
C. 1.2
D. 1.3
53. Firm A has a lower degree of business risk than Firm B.
What would be a result of a 1% increase in sales for both firms?
A. a greater percentage increase in Firm B's operating income
B. a greater percentage increase in Firm A’s operating income
C. a greater percentage decrease in Firm As operating income
D. a greater percentage decrease in Firm Bs operating income
54. Modigilani and Miller's initial capital structure theory suggested that in the absence of taxes, bankruptcy costs and transaction costs, the firm's capital structure would not affect the weighted average cost of capital (WACC).
What has been proven by subsequent research and inclusion of factors omitted in the initial theory?
A. Financing decisions do not affect a firm's value
B. Modigliani and Miller's initial work has proven accurate in determining a firm's value.
C. Taxes are the only factor that impacts the weighted average cost of capital and a firm's value
D. A firm's capital structure does affect the weighted average costs of capital, and thus a firm's value. [Show Less]