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WGU C214 Financial Management 2026-2027 BANK QUESTIONS
WITH DETAILED VERIFIED ANSWERS EXAM QUESTIONS
WILL COME FROM HERE (100% CORRECT ANSWERS A+
GRADED
1. A company is evaluating a project that requires an initial investment
of $500,000. The project is expected to generate cash flows of
$150,000 per year for 5 years. What is the payback period?
A) 2.50 years
B) 3.00 years
C) 3.33 years
D) 4.00 years
Answer: C) 3.33 years
Explanation: The payback period is the time required to recover the
initial investment. With annual cash flows of $150,000, the cumulative
cash flow after 3 years is $450,000. The remaining $50,000 is recovered
in year 4. The fraction of year 4 needed is $50,000 / $150,000 = 0.33
years. Thus, the payback period is 3.33 years.
2. Which of the following is a primary goal of financial management?
A) Maximizing market share
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B) Maximizing shareholder wealth
C) Minimizing operational costs
D) Maximizing total revenue
Answer: B) Maximizing shareholder wealth
Explanation: The primary goal of financial management is to maximize
the current value per share of the existing stock, which is equivalent to
maximizing shareholder wealth. This goal considers both risk and timing
of returns, unlike accounting profit maximization.
3. A firm has a current ratio of 2.5 and a quick ratio of 1.8. If the firm
uses cash to pay off accounts payable, what happens to these ratios?
A) Both ratios decrease
B) Both ratios increase
C) Current ratio increases and quick ratio decreases
D) Current ratio decreases and quick ratio increases
Answer: B) Both ratios increase
Explanation: When a firm uses cash to reduce accounts payable, both
current assets and current liabilities decrease by the same amount.
Since the ratios are greater than 1, the proportional reduction in the
denominator is larger, causing both ratios to increase.
4. What does the internal rate of return represent?
A) The discount rate that makes the net present value equal to zero
B) The accounting rate of return on total assets
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C) The required rate of return set by the SEC
D) The rate at which the payback period equals the project life
Answer: A) The discount rate that makes the net present value equal to
zero
Explanation: The internal rate of return is the discount rate that
equates the present value of future cash inflows with the initial
investment outlay. It is the break-even rate of return for the project.
5. A bond with a face value of $1,000 has a coupon rate of 8% paid
annually and matures in 10 years. If the market interest rate is 6%, the
bond will sell at:
A) Par value
B) A discount
C) A premium
D) Face value minus accrued interest
Answer: C) A premium
Explanation: When the coupon rate (8%) exceeds the market interest
rate (6%), the bond's cash flows are more attractive than newly issued
bonds. Investors will pay more than face value to receive the higher
coupon payments, so the bond sells at a premium.
6. A company's stock has a beta of 1.5. The risk-free rate is 3% and the
expected market return is 10%. Using CAPM, what is the required
return?
A) 10.5%
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B) 13.5%
C) 15.0%
D) 18.0%
Answer: B) 13.5%
Explanation: The Capital Asset Pricing Model states Required Return =
Risk-free rate + Beta × (Market return - Risk-free rate). Plugging in the
values: 3% + 1.5 × (10% - 3%) = 3% + 1.5 × 7% = 3% + 10.5% = 13.5%.
7. Which of the following capital budgeting techniques ignores the time
value of money?
A) Net present value
B) Internal rate of return
C) Payback period
D) Profitability index
Answer: C) Payback period
Explanation: The payback period simply counts the years needed to
recover the initial investment without discounting future cash flows. It
treats a dollar received in year 5 the same as a dollar received today,
thus ignoring the time value of money.
8. A firm's weighted average cost of capital is best described as the:
A) Cost of the firm's equity financing
B) Average of the firm's historical borrowing costs
C) Overall return required by the firm's investors
WGU C214 Financial Management 2026-2027 BANK QUESTIONS
WITH DETAILED VERIFIED ANSWERS EXAM QUESTIONS
WILL COME FROM HERE (100% CORRECT ANSWERS A+
GRADED
1. A company is evaluating a project that requires an initial investment
of $500,000. The project is expected to generate cash flows of
$150,000 per year for 5 years. What is the payback period?
A) 2.50 years
B) 3.00 years
C) 3.33 years
D) 4.00 years
Answer: C) 3.33 years
Explanation: The payback period is the time required to recover the
initial investment. With annual cash flows of $150,000, the cumulative
cash flow after 3 years is $450,000. The remaining $50,000 is recovered
in year 4. The fraction of year 4 needed is $50,000 / $150,000 = 0.33
years. Thus, the payback period is 3.33 years.
2. Which of the following is a primary goal of financial management?
A) Maximizing market share
,2|Page
B) Maximizing shareholder wealth
C) Minimizing operational costs
D) Maximizing total revenue
Answer: B) Maximizing shareholder wealth
Explanation: The primary goal of financial management is to maximize
the current value per share of the existing stock, which is equivalent to
maximizing shareholder wealth. This goal considers both risk and timing
of returns, unlike accounting profit maximization.
3. A firm has a current ratio of 2.5 and a quick ratio of 1.8. If the firm
uses cash to pay off accounts payable, what happens to these ratios?
A) Both ratios decrease
B) Both ratios increase
C) Current ratio increases and quick ratio decreases
D) Current ratio decreases and quick ratio increases
Answer: B) Both ratios increase
Explanation: When a firm uses cash to reduce accounts payable, both
current assets and current liabilities decrease by the same amount.
Since the ratios are greater than 1, the proportional reduction in the
denominator is larger, causing both ratios to increase.
4. What does the internal rate of return represent?
A) The discount rate that makes the net present value equal to zero
B) The accounting rate of return on total assets
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C) The required rate of return set by the SEC
D) The rate at which the payback period equals the project life
Answer: A) The discount rate that makes the net present value equal to
zero
Explanation: The internal rate of return is the discount rate that
equates the present value of future cash inflows with the initial
investment outlay. It is the break-even rate of return for the project.
5. A bond with a face value of $1,000 has a coupon rate of 8% paid
annually and matures in 10 years. If the market interest rate is 6%, the
bond will sell at:
A) Par value
B) A discount
C) A premium
D) Face value minus accrued interest
Answer: C) A premium
Explanation: When the coupon rate (8%) exceeds the market interest
rate (6%), the bond's cash flows are more attractive than newly issued
bonds. Investors will pay more than face value to receive the higher
coupon payments, so the bond sells at a premium.
6. A company's stock has a beta of 1.5. The risk-free rate is 3% and the
expected market return is 10%. Using CAPM, what is the required
return?
A) 10.5%
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B) 13.5%
C) 15.0%
D) 18.0%
Answer: B) 13.5%
Explanation: The Capital Asset Pricing Model states Required Return =
Risk-free rate + Beta × (Market return - Risk-free rate). Plugging in the
values: 3% + 1.5 × (10% - 3%) = 3% + 1.5 × 7% = 3% + 10.5% = 13.5%.
7. Which of the following capital budgeting techniques ignores the time
value of money?
A) Net present value
B) Internal rate of return
C) Payback period
D) Profitability index
Answer: C) Payback period
Explanation: The payback period simply counts the years needed to
recover the initial investment without discounting future cash flows. It
treats a dollar received in year 5 the same as a dollar received today,
thus ignoring the time value of money.
8. A firm's weighted average cost of capital is best described as the:
A) Cost of the firm's equity financing
B) Average of the firm's historical borrowing costs
C) Overall return required by the firm's investors
