WGU C214 OA: Financial Management EXAM
QUESTIONS AND ANSWERS (VERIFIED ANSWERS)
Q&A 2026|INSTANT DOWNLOAD PDF
1. Which of the following are primary goals of financial
management?
A. Maximizing shareholder wealth
B. Minimizing taxes
C. Ensuring liquidity
D. Maximizing profits at all costs
Correct Answers: A, C
Rationale: The main goal of financial management is to
maximize shareholder wealth while ensuring the company can
meet its financial obligations (liquidity). Maximizing profits at all
costs can be risky, and taxes are considered but not the primary
goal.
2. The present value (PV) of a future cash flow decreases
when:
A. The discount rate increases
B. The time period decreases
C. The future cash flow increases
D. The interest rate decreases
,Correct Answer: A
Rationale: PV and discount rate are inversely related: the
higher the discount rate, the lower the present value of future
cash flows.
3. Which of the following represent sources of long-term
financing?
A. Retained earnings
B. Bank overdraft
C. Bonds
D. Accounts payable
Correct Answers: A, C
Rationale: Retained earnings and bonds are long-term sources
of financing. Bank overdrafts and accounts payable are short-
term liabilities.
4. A company’s cost of capital includes:
A. Cost of equity
B. Cost of debt
C. Dividend yield
D. Inflation rate
Correct Answers: A, B
Rationale: The cost of capital reflects the cost of financing from
,both equity and debt. Dividend yield is part of equity return but
not the total cost of capital, and inflation is external.
5. Which of the following are characteristics of preferred
stock?
A. Fixed dividends
B. Voting rights
C. Priority over common stock in bankruptcy
D. Convertible into debt
Correct Answers: A, C
Rationale: Preferred stock typically has fixed dividends and
priority over common stock during liquidation. It generally has
no voting rights, and it is sometimes convertible into common
stock, not debt.
6. The internal rate of return (IRR) is defined as:
A. The interest rate at which NPV equals zero
B. The discount rate that maximizes profit
C. The cost of debt for the firm
D. The expected return on equity
Correct Answer: A
Rationale: IRR is the discount rate that makes the net present
value (NPV) of all cash flows equal to zero.
, 7. Which of the following statements about working capital
are true?
A. It is the difference between current assets and current
liabilities
B. Positive working capital indicates the company can cover
short-term obligations
C. Negative working capital is always a sign of financial trouble
D. It only includes cash and accounts receivable
Correct Answers: A, B
Rationale: Working capital measures short-term financial
health. Negative working capital is not always bad—it could
indicate efficient cash management.
8. Which of the following affect a firm’s cost of debt?
A. Credit rating
B. Interest rates in the market
C. Dividend policy
D. Tax rate
Correct Answers: A, B, D
Rationale: The cost of debt depends on creditworthiness,
market rates, and tax deductibility of interest. Dividend policy
affects equity, not debt.
9. The main advantage of debt financing is:
QUESTIONS AND ANSWERS (VERIFIED ANSWERS)
Q&A 2026|INSTANT DOWNLOAD PDF
1. Which of the following are primary goals of financial
management?
A. Maximizing shareholder wealth
B. Minimizing taxes
C. Ensuring liquidity
D. Maximizing profits at all costs
Correct Answers: A, C
Rationale: The main goal of financial management is to
maximize shareholder wealth while ensuring the company can
meet its financial obligations (liquidity). Maximizing profits at all
costs can be risky, and taxes are considered but not the primary
goal.
2. The present value (PV) of a future cash flow decreases
when:
A. The discount rate increases
B. The time period decreases
C. The future cash flow increases
D. The interest rate decreases
,Correct Answer: A
Rationale: PV and discount rate are inversely related: the
higher the discount rate, the lower the present value of future
cash flows.
3. Which of the following represent sources of long-term
financing?
A. Retained earnings
B. Bank overdraft
C. Bonds
D. Accounts payable
Correct Answers: A, C
Rationale: Retained earnings and bonds are long-term sources
of financing. Bank overdrafts and accounts payable are short-
term liabilities.
4. A company’s cost of capital includes:
A. Cost of equity
B. Cost of debt
C. Dividend yield
D. Inflation rate
Correct Answers: A, B
Rationale: The cost of capital reflects the cost of financing from
,both equity and debt. Dividend yield is part of equity return but
not the total cost of capital, and inflation is external.
5. Which of the following are characteristics of preferred
stock?
A. Fixed dividends
B. Voting rights
C. Priority over common stock in bankruptcy
D. Convertible into debt
Correct Answers: A, C
Rationale: Preferred stock typically has fixed dividends and
priority over common stock during liquidation. It generally has
no voting rights, and it is sometimes convertible into common
stock, not debt.
6. The internal rate of return (IRR) is defined as:
A. The interest rate at which NPV equals zero
B. The discount rate that maximizes profit
C. The cost of debt for the firm
D. The expected return on equity
Correct Answer: A
Rationale: IRR is the discount rate that makes the net present
value (NPV) of all cash flows equal to zero.
, 7. Which of the following statements about working capital
are true?
A. It is the difference between current assets and current
liabilities
B. Positive working capital indicates the company can cover
short-term obligations
C. Negative working capital is always a sign of financial trouble
D. It only includes cash and accounts receivable
Correct Answers: A, B
Rationale: Working capital measures short-term financial
health. Negative working capital is not always bad—it could
indicate efficient cash management.
8. Which of the following affect a firm’s cost of debt?
A. Credit rating
B. Interest rates in the market
C. Dividend policy
D. Tax rate
Correct Answers: A, B, D
Rationale: The cost of debt depends on creditworthiness,
market rates, and tax deductibility of interest. Dividend policy
affects equity, not debt.
9. The main advantage of debt financing is:
