WGU C214 FINANCIAL MANAGEMENT EXAM
QUESTIONS AND 100% VERIFIED ANSWERS
WITH RATIONALES GRADED A+ LATEST
1. Which primary objective best reflects the goal of financial management in a
corporation?
A. Maximizing reported net income
B. Minimizing operational risk
C. Maximizing shareholder wealth
D. Maintaining market stability
Correct Answer: C
Rationale: Financial management focuses on maximizing shareholder wealth,
typically reflected in stock price, rather than short-term accounting profits or risk
minimization alone.
2. A company’s current assets total $600,000 and current liabilities are
$400,000. What is the company’s current ratio?
A. 0.67
B. 1.0
C. 1.25
D. 1.50
Correct Answer: D
Rationale: Current Ratio = Current Assets ÷ Current Liabilities = 600,000 ÷
400,000 = 1.5.
,3. Which financial statement reports a firm’s financial position at a specific
point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C
Rationale: The balance sheet shows assets, liabilities, and equity at a specific date.
4. If inflation increases unexpectedly, which group is most likely to benefit?
A. Bondholders
B. Lenders
C. Borrowers
D. Preferred shareholders
Correct Answer: C
Rationale: Borrowers benefit because they repay debt with dollars that have less
purchasing power.
5. Which risk reflects uncertainty about the future economy affecting all
firms?
A. Business risk
B. Financial risk
C. Systematic risk
D. Unsystematic risk
Correct Answer: C
Rationale: Systematic risk affects the entire market and cannot be diversified
away.
,6. A firm has a beta of 1.4. What does this indicate?
A. The stock is less volatile than the market
B. The stock is risk-free
C. The stock is more volatile than the market
D. The stock has no correlation with the market
Correct Answer: C
Rationale: A beta greater than 1 indicates higher volatility relative to the market.
7. Which component is included in the calculation of weighted average cost of
capital (WACC)?
A. Historical cost of equity
B. Book value of debt
C. After-tax cost of debt
D. Dividend payout ratio
Correct Answer: C
Rationale: WACC incorporates the after-tax cost of debt and the required return
on equity.
8. A project has an initial investment of $100,000 and expected annual cash
inflows of $25,000 for 5 years. What is the payback period?
A. 3 years
B. 4 years
C. 5 years
D. 6 years
Correct Answer: B
Rationale: Payback Period = Initial Investment ÷ Annual Cash Inflows = 100,000
÷ 25,000 = 4 years.
, 9. Which capital budgeting method explicitly considers the time value of
money?
A. Payback period
B. Accounting rate of return
C. Net present value
D. Profit margin
Correct Answer: C
Rationale: Net present value discounts future cash flows to their present value.
10. A project with a positive NPV should be:
A. Rejected due to higher risk
B. Accepted because it adds value
C. Deferred until interest rates fall
D. Accepted only if IRR is negative
Correct Answer: B
Rationale: A positive NPV indicates the project increases shareholder wealth.
11. Which factor increases a firm’s operating leverage?
A. Higher variable costs
B. Lower fixed costs
C. Higher fixed costs
D. Lower sales volume
Correct Answer: C
Rationale: Operating leverage increases as fixed costs increase relative to variable
costs.
QUESTIONS AND 100% VERIFIED ANSWERS
WITH RATIONALES GRADED A+ LATEST
1. Which primary objective best reflects the goal of financial management in a
corporation?
A. Maximizing reported net income
B. Minimizing operational risk
C. Maximizing shareholder wealth
D. Maintaining market stability
Correct Answer: C
Rationale: Financial management focuses on maximizing shareholder wealth,
typically reflected in stock price, rather than short-term accounting profits or risk
minimization alone.
2. A company’s current assets total $600,000 and current liabilities are
$400,000. What is the company’s current ratio?
A. 0.67
B. 1.0
C. 1.25
D. 1.50
Correct Answer: D
Rationale: Current Ratio = Current Assets ÷ Current Liabilities = 600,000 ÷
400,000 = 1.5.
,3. Which financial statement reports a firm’s financial position at a specific
point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C
Rationale: The balance sheet shows assets, liabilities, and equity at a specific date.
4. If inflation increases unexpectedly, which group is most likely to benefit?
A. Bondholders
B. Lenders
C. Borrowers
D. Preferred shareholders
Correct Answer: C
Rationale: Borrowers benefit because they repay debt with dollars that have less
purchasing power.
5. Which risk reflects uncertainty about the future economy affecting all
firms?
A. Business risk
B. Financial risk
C. Systematic risk
D. Unsystematic risk
Correct Answer: C
Rationale: Systematic risk affects the entire market and cannot be diversified
away.
,6. A firm has a beta of 1.4. What does this indicate?
A. The stock is less volatile than the market
B. The stock is risk-free
C. The stock is more volatile than the market
D. The stock has no correlation with the market
Correct Answer: C
Rationale: A beta greater than 1 indicates higher volatility relative to the market.
7. Which component is included in the calculation of weighted average cost of
capital (WACC)?
A. Historical cost of equity
B. Book value of debt
C. After-tax cost of debt
D. Dividend payout ratio
Correct Answer: C
Rationale: WACC incorporates the after-tax cost of debt and the required return
on equity.
8. A project has an initial investment of $100,000 and expected annual cash
inflows of $25,000 for 5 years. What is the payback period?
A. 3 years
B. 4 years
C. 5 years
D. 6 years
Correct Answer: B
Rationale: Payback Period = Initial Investment ÷ Annual Cash Inflows = 100,000
÷ 25,000 = 4 years.
, 9. Which capital budgeting method explicitly considers the time value of
money?
A. Payback period
B. Accounting rate of return
C. Net present value
D. Profit margin
Correct Answer: C
Rationale: Net present value discounts future cash flows to their present value.
10. A project with a positive NPV should be:
A. Rejected due to higher risk
B. Accepted because it adds value
C. Deferred until interest rates fall
D. Accepted only if IRR is negative
Correct Answer: B
Rationale: A positive NPV indicates the project increases shareholder wealth.
11. Which factor increases a firm’s operating leverage?
A. Higher variable costs
B. Lower fixed costs
C. Higher fixed costs
D. Lower sales volume
Correct Answer: C
Rationale: Operating leverage increases as fixed costs increase relative to variable
costs.
