WGU C214 Test Questions Finance Management PVCC Accurate Answers Only [2022/2023]
WGU C214 Test Questions Finance
Management PVCC
Q1. How can a
... [Show More] private firm appropriately maximize shareholder value?
By making decisions that keep the control of the business with the owners
Q2. Why are American regulators focused on international investing in a global
marketplace?
Because international investing in a global marketplace is the concern of American investors
Q3. What is one of the two basic types of financial instruments?
Bonds
Q4. If a company outsources the manufacturing of its products to a foreign country, what
are the likeliest outcomes?
Domestic employment will decrease
Consumer prices will decrease
Q5. What is true about the content and structure of a balance sheet?
It reports the assets, liabilities, and equity at a point in time
Q6. 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?
The change will decrease cash flows from operations by $5,000
Q7. Which statement accurately explains the recognition of revenues and expenses under
accounting income and income for tax purposes?
Revenues and expenses are always recognized in the same period for accounting income
purposes and income for tax purposes
Q8. What is the basic equation for a balance sheet?
Assets = liabilities + equity
Q8A.
Selected Data for 20x2 for ABD Inc.Net income $ 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?
$5,000 outflow
Q9. What do cash flows from investing activities generally relate to?
A firm's purchase and sale of long-term assets
Q10. Which transaction is reflected in cash flow from operating activities?
Cash sales to customers
Q11. What does free cash flow represent?
Cash available for distribution after funding required reinvestment
12. An analyst is comparing the ratios of two different firms and needs to address timing
differences.
What would be considered an example of a timing difference between the two firms?
The firms have different fiscal years
13. A company’s yearend balance sheet for 2013:
AR: 900
Inventory: 1200
Fixed assets: 1000
AP: 1300
Sales: 4000
Salaries: 275
14. What is their fixed asset turnover ratio?
4.0
15. A firm has a ROE of 0.27 and the industry average ROE is 0.24
Which conclusion would an analyst draw when comparing the firm to the industry?
The firm is generating higher returns to owners than the industry16. What is an example of an inventory method for accounting purposes?
Last in, first out method
16A. What must have taken place for a firm to recognize revenue, in order for the firm to
comply with the accrual accounting rules?
The product must have been delivered.
17. 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?
$121,665
18. An accountant is 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.
How much will the accountant have upon retirement, if the accountant is able to earn 4%
annually on his investment?
$336,510
19. 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 of the tenth year.
What is the investor's future balance after 10 years?
$24,973
20. What is the par value (face value) of a bond?
The sum of money that the corporation promises to pay upon expiration of the bond
21. 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?
Intrinsic value is 25% below the current stock price
22. A broker is considering buying a dividend-paying stock. The dividend will be paid at the
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 stock?
$34.1523. 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?
14.9%
24. The market rate of return is 9%. The face value of the 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?
$1000
25. Which statement is true about fluctuations in bond prices?
When market interest rates fluctuate, the bond coupon rate is unchanged
26. A company issues bonds at a market price of $925. The face value is $1000. The bond
matures in 10 years, and the coupon rate is 6% compounded semiannually.
What is the yield to maturity (YTM) on the company's bonds?
7.06%
27. Which securities are issued by local governments and are usually tax exempt at the
federal level?
Municipal bonds
28. 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?
4.28%
29. Why does a long-term bond resemble an interest-only loan?
None of the principle is repaid until the bond matures
30. Under which circumstances will annual percentage yield (APY) be greater than the
annual percentage rate (APR)?
Anytime the number of compounding periods is greater than annual
31. What is the difference between a common stock and preferred stock?
Skipping a declared preferred stock dividend results in dividends in arrears
32. Which happens to the risk level in a portfolio as the number of assets in the portfolio
increases?Risk decreases at a slower rate
33. What are two primary benefits of the capital asset pricing model (CAPM)?
CAPM provides a way to determine the expected return for stocks.
CAPM provides a way to estimate the required returned.
34. A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt 6%, a
cost of preferred equity 8%, and a marginal tax rate of 34%. The current market value of
the company is $150 million, with $75 million common equity, $50 million debt, and $25
million preferred equity.
What will the company's weighted average pre-tax cost of capital be?
9.7%
35. Which two techniques would be considered effective ways to manage the growth of a
firm, if additional financing is not available?
Increase sales prices
Alter capacity
36. A machine will reach the end of its useful life in year 5. The realizable salvage value is
expected to be $50,000 with a book value of zero. The company's marginal tax rate is 34%.
What is the tax implication on the sale of the new machine at year 5?
Tax liabilities of $17,000
37. What is the acceptance criteria when using internal rate of return to evaluate a project?
Accept when the project return is greater than the required return
38. A company would like to invest in a capital budget project what will be worth $500,000
in 40 years.
How much should the company invest today, assuming an average inflation rate of 2% and
a 10% annual return?
$23, 015
39. A company has a market value of $500 million.
It has a market value of equity of $200 million, a market value of long-term debt of $150
million.
The cost of equity is 12%, the cost of long -term debt is 8%, and the cost of short-term debtis 6%. The marginal tax rate is 35%.
What is the weighted average per-tax cost of capital (WACC) for this company?
8.37%
40. What advantage does the capital asset pricing model (CAPM) have over the Gordon
growth model?
CAPM considers risk of a stock relative to the market to determine expected returns
41. Why do companies strive for a lower cost of capital?
Less money dedicated to financing means more money is available for production and operations
42. A corporation established its projected sales at $210 million. It is using its current year
balance sheet as a basis for creating a pro forma balance sheet. They estimate cash will be
7% of projected sales, accounts receivable will be 19% of projected sales, and the PP&E
will be 55% of the projected sales. Accounts payable are estimated to be 12% of projected
sales. Owner's equity is $34 million. Long-term debt is $90 million. Additionally, the firm
raised $12.9 million of equity capital.
What is the amount of discretionary financing needed?
$8 million
43. Year 2010 ending retained earnings were 2 millions. Year 2011 forecasted sales are
$100,000 with a 25% net margin and 20% dividend payout ratio.
What are the forecasted retained earnings for Year 2011?
$2,020,000
44. How is the amount of discretionary financing that is needed by a firm determined?
Projected total assets- projected total liabilities + projected owner's equity
45. A company is preparing a pro forma balance sheet. The company forecast $10 million in
projected sales. The projected cash needed 6% of sales, AR are 19% of sales, and PP&E are
50% of sales. Accounts payable has been 12% of sales, historically. Shareholders equity is
$1.5 million. Pro forma income is $3.6 million. The company has no long-term debt.
What is the total discretionary amount for the pro forma balance sheet?
$1.2 million
46. Which three pieces of data are needed to perform a capital budget analysis?
The initial cost of the new project
Annual cash flows for the life of the new project
Cash flow when the firm terminates the project47. What are two examples of sunk costs?
The cost of a market study conducted prior to the decision
The cost of feasibility consulting incurred before the decision point
48. Company A has a degree of operating leverage of 1.85 and Company B has a degree of
operating leverage of 6.5.
What does the degree of operating leverage say about the two companies?
Company A must have a lower increase in sales than Company B to achieve the same operating
income
49. Which action is an important part of managing accounts receivable?
Setting credit terms
50. What is the main benefit associated with holding inventory?
It makes it possible to meet the demands of customers
51. A person needs to determine the cost o replace a company's property, plant, and
equipment using the replacement cost method.
Which value does this person need to consider in order to make this determination?
Market value
52. Which type of investment will a risk-averse investor most likely invest in?
Index funds
53. Company Y has a greater degree of financial risk than Company Z.
What will happen if there is a 1% decrease in EBT for both companies?
It will result in a greater percentage increase in Company Y's per-tax profit
54. How does the anticipation of bankruptcy affect a firm's capital structure?
A firm facing bankruptcy will reduce debt to avoid associated high levels of bankruptcy costs
55. Why would a company prefer to raise capital by issuing debt instead of issuing new
equity?
Debt financing provides interest tax benefits56. Which hybrid security system has special claims on a corporations profits or, in case of
liquidation, corporate assets?
Preferred Stock
57. How will an increase in corporate tax rates affect a firm's cost of capital?
The cost of debt will increase
58. Which financial ratio is used to measure a company effectiveness in extending credit as
well as collecting debts?
AR turnover
59. What is he reason for holding cash and cash equivalents?
To provide liquidity
60. Which term describes the amount of cash a firm needs in order to pay its immediate
bills?
Working capital
61. How does the Securities Exchange Commission (SEC) regulate the financial industry?
By requiring public disclosure of information about entities that sell public equity or debt
62. Which company control is required by the Sarbanes-Oxley Act?
Disclosure of off-balance sheet debts
63. Which document is required to be made available prior to a firm going public,
according to the Securities Act 1933?
Prospectus
64. What does the financial Industry Regulatory Authority (FINRA) examine to determine
if a firm is in compliance with rules of FINRA and SEC?
Sales practices
65. What did the Dodd-Frank Act seek to prevent?
Financial institutions becoming too big to fail66. A bond that matures in 30 months is sold at a premium.
What is the yield to maturity (YTM)?
Lower than the coupon rate [Show Less]