C214: FINANCIAL
MANAGEMENT
Objective Assessment
(OA)2026 Exam
CONTAINS
• 200+ unique WGU C214 Financial Management exam–style questions and
answers
• High-yield questions focused on the most frequently tested C214 concepts
• Multiple-choice and scenario-based OA-style questions
• Clearly marked Correct Answers for every question
• Detailed, exam-focused rationales explaining financial decision-making
• Time value of money (TVM) concepts and calculations
• Net present value (NPV), internal rate of return (IRR), and capital budgeting
• Risk, return, and cost of capital analysis
• Financial statement analysis and ratio interpretation
• Working capital management concepts
• Bond and stock valuation fundamentals
,A financial manager is evaluating two mutually exclusive projects, Project Alpha and Project Beta.
Project Alpha has an initial cost of $150,000 and generates net cash flows of $50,000 per year for 5
years. Project Beta has an initial cost of $200,000 and generates net cash flows of $65,000 per year for
5 years. The company’s required rate of return is 10%. Which project should be selected based on the
Net Present Value (NPV) method, and what is the primary rationale for this decision rule?
A) Project Beta, because it has a higher total cash inflow over the life of the project.
B) Project Alpha, because it has a higher Profitability Index (PI) than Project Beta.
C) Project Beta, because it has a higher NPV than Project Alpha, maximizing shareholder wealth.
D) Project Alpha, because it has a shorter payback period.
Correct Answer: C) Project Beta, because it has a higher NPV than Project Alpha, maximizing
shareholder wealth.
Explanation / Rationale:
The Net Present Value (NPV) method is the primary capital budgeting technique because it directly
measures the increase in shareholder wealth resulting from a project. To calculate NPV, we discount
the future cash flows back to the present at the required rate of return (10%) and subtract the initial
investment.
For Project Alpha: NPV = ($50,000 × 3.7908) - $150,000 = $189,540 - $150,000 = $39,540.
For Project Beta: NPV = ($65,000 × 3.7908) - $200,000 = $246,402 - $200,000 = $46,402.
Although Project Alpha has a lower initial cost and a higher Profitability Index (PI), the NPV rule states
that when projects are mutually exclusive, the project with the higher NPV should be selected. This is
because NPV represents the absolute dollar value added to the firm. Selecting Project Beta adds
approximately $6,862 more in value than Project Alpha. Option A is incorrect because it ignores the
time value of money. Option D is incorrect because the payback period does not account for the time
value of money or cash flows occurring after the payback period.
Which of the following statements best describes the relationship between the yield to maturity
(YTM) on a bond and its current market price? Assume all other factors remain constant.
A) The YTM and market price are inversely related; when the market price rises, the YTM falls.
B) The YTM and market price are directly related; when the market price rises, the YTM also rises to
reflect increased demand.
C) The YTM is fixed at the time of issuance and does not change, regardless of fluctuations in the market
price.
,D) The YTM equals the coupon rate when the bond is trading at a discount, but is less than the coupon
rate when trading at a premium.
Correct Answer: A) The YTM and market price are inversely related; when the market price rises,
the YTM falls.
Explanation / Rationale:
There is an inverse relationship between a bond’s yield to maturity (YTM) and its market price. This
occurs because the coupon payments of a standard bond are fixed. If market interest rates rise, newly
issued bonds offer higher coupon rates, making existing bonds with lower coupons less attractive.
Consequently, the market price of the existing bond must fall to increase its effective yield (YTM) to
match the market rate. Conversely, if market rates fall, existing bonds with higher coupons become
more valuable, causing their price to rise, which depresses their YTM below the coupon rate. Option B
is incorrect because it suggests a direct relationship, which contradicts fundamental bond valuation
mathematics. Option C is incorrect because YTM fluctuates daily with market conditions; only the
coupon rate is fixed. Option D is incorrect because the YTM equals the coupon rate only when the
bond trades at par value; it is higher than the coupon rate when trading at a discount and lower when
trading at a premium.
Select-All-That-Apply: A company has determined that its Weighted Average Cost of Capital
(WACC) is 9.5%. The finance team is reviewing three potential projects with the following Internal
Rates of Return (IRR):
Project X: IRR = 8.5%
Project Y: IRR = 9.5%
Project Z: IRR = 10.5%
Which of the following statements regarding the acceptability of these projects is correct? (Select all
that apply)
A) Project X should be rejected because its IRR is less than the WACC.
B) Project Y should be accepted because its IRR equals the WACC, resulting in a Net Present Value
(NPV) of zero.
C) Project Z should be accepted because it adds value to the firm, generating a return higher than the
cost of capital.
D) Project Y should be rejected because a zero NPV does not cover the opportunity cost of capital.
, Correct Answer: A) Project X should be rejected because its IRR is less than the WACC.
B) Project Y should be accepted because its IRR equals the WACC, resulting in a Net Present Value
(NPV) of zero.
C) Project Z should be accepted because it adds value to the firm, generating a return higher than the
cost of capital.
Explanation / Rationale:
The WACC represents the hurdle rate or the minimum required return for a project. In capital
budgeting, any project with an IRR less than the WACC destroys value (negative NPV) and should be
rejected. Therefore, Project X (8.5% < 9.5%) should be rejected. If a project's IRR equals the WACC, the
project generates a return exactly equal to the cost of the capital used to fund it. Theoretically, this
results in an NPV of zero, meaning the project is at the break-even point in terms of value creation; it
neither adds nor destroys value, and the firm is indifferent to accepting it. Option B is correct in this
context. Project Z has an IRR greater than the WACC, indicating it generates excess returns (positive
NPV) and should be accepted. Option D is incorrect because while an NPV of zero adds no value, it also
does not fail to cover the opportunity cost; the return exactly matches the required return. In many
academic and practical scenarios, a project with an NPV of zero may be accepted if it has strategic
value or intangible benefits, but strictly financially, the firm is indifferent.
Miller Corporation is trying to determine its optimal capital structure. The company has gathered the
following data:
At a Debt/Equity ratio of 0.2, the cost of debt is 6%, and the cost of equity is 12%.
At a Debt/Equity ratio of 0.8, the cost of debt is 8%, and the cost of equity is 16%.
Assume the corporate tax rate is 30%.
Which of the following calculations represents the correct Weighted Average Cost of Capital (WACC)
for the capital structure with a Debt/Equity ratio of 0.8?
A) WACC = (0.8 × 8% × (1 - 0.3)) + (0.2 × 16%)
B) WACC = (0.44 × 8% × (1 - 0.3)) + (0.56 × 16%)
C) WACC = (0.8 × 8%) + (0.2 × 16%)
D) WACC = (0.2 × 8% × (1 - 0.3)) + (0.8 × 16%)
MANAGEMENT
Objective Assessment
(OA)2026 Exam
CONTAINS
• 200+ unique WGU C214 Financial Management exam–style questions and
answers
• High-yield questions focused on the most frequently tested C214 concepts
• Multiple-choice and scenario-based OA-style questions
• Clearly marked Correct Answers for every question
• Detailed, exam-focused rationales explaining financial decision-making
• Time value of money (TVM) concepts and calculations
• Net present value (NPV), internal rate of return (IRR), and capital budgeting
• Risk, return, and cost of capital analysis
• Financial statement analysis and ratio interpretation
• Working capital management concepts
• Bond and stock valuation fundamentals
,A financial manager is evaluating two mutually exclusive projects, Project Alpha and Project Beta.
Project Alpha has an initial cost of $150,000 and generates net cash flows of $50,000 per year for 5
years. Project Beta has an initial cost of $200,000 and generates net cash flows of $65,000 per year for
5 years. The company’s required rate of return is 10%. Which project should be selected based on the
Net Present Value (NPV) method, and what is the primary rationale for this decision rule?
A) Project Beta, because it has a higher total cash inflow over the life of the project.
B) Project Alpha, because it has a higher Profitability Index (PI) than Project Beta.
C) Project Beta, because it has a higher NPV than Project Alpha, maximizing shareholder wealth.
D) Project Alpha, because it has a shorter payback period.
Correct Answer: C) Project Beta, because it has a higher NPV than Project Alpha, maximizing
shareholder wealth.
Explanation / Rationale:
The Net Present Value (NPV) method is the primary capital budgeting technique because it directly
measures the increase in shareholder wealth resulting from a project. To calculate NPV, we discount
the future cash flows back to the present at the required rate of return (10%) and subtract the initial
investment.
For Project Alpha: NPV = ($50,000 × 3.7908) - $150,000 = $189,540 - $150,000 = $39,540.
For Project Beta: NPV = ($65,000 × 3.7908) - $200,000 = $246,402 - $200,000 = $46,402.
Although Project Alpha has a lower initial cost and a higher Profitability Index (PI), the NPV rule states
that when projects are mutually exclusive, the project with the higher NPV should be selected. This is
because NPV represents the absolute dollar value added to the firm. Selecting Project Beta adds
approximately $6,862 more in value than Project Alpha. Option A is incorrect because it ignores the
time value of money. Option D is incorrect because the payback period does not account for the time
value of money or cash flows occurring after the payback period.
Which of the following statements best describes the relationship between the yield to maturity
(YTM) on a bond and its current market price? Assume all other factors remain constant.
A) The YTM and market price are inversely related; when the market price rises, the YTM falls.
B) The YTM and market price are directly related; when the market price rises, the YTM also rises to
reflect increased demand.
C) The YTM is fixed at the time of issuance and does not change, regardless of fluctuations in the market
price.
,D) The YTM equals the coupon rate when the bond is trading at a discount, but is less than the coupon
rate when trading at a premium.
Correct Answer: A) The YTM and market price are inversely related; when the market price rises,
the YTM falls.
Explanation / Rationale:
There is an inverse relationship between a bond’s yield to maturity (YTM) and its market price. This
occurs because the coupon payments of a standard bond are fixed. If market interest rates rise, newly
issued bonds offer higher coupon rates, making existing bonds with lower coupons less attractive.
Consequently, the market price of the existing bond must fall to increase its effective yield (YTM) to
match the market rate. Conversely, if market rates fall, existing bonds with higher coupons become
more valuable, causing their price to rise, which depresses their YTM below the coupon rate. Option B
is incorrect because it suggests a direct relationship, which contradicts fundamental bond valuation
mathematics. Option C is incorrect because YTM fluctuates daily with market conditions; only the
coupon rate is fixed. Option D is incorrect because the YTM equals the coupon rate only when the
bond trades at par value; it is higher than the coupon rate when trading at a discount and lower when
trading at a premium.
Select-All-That-Apply: A company has determined that its Weighted Average Cost of Capital
(WACC) is 9.5%. The finance team is reviewing three potential projects with the following Internal
Rates of Return (IRR):
Project X: IRR = 8.5%
Project Y: IRR = 9.5%
Project Z: IRR = 10.5%
Which of the following statements regarding the acceptability of these projects is correct? (Select all
that apply)
A) Project X should be rejected because its IRR is less than the WACC.
B) Project Y should be accepted because its IRR equals the WACC, resulting in a Net Present Value
(NPV) of zero.
C) Project Z should be accepted because it adds value to the firm, generating a return higher than the
cost of capital.
D) Project Y should be rejected because a zero NPV does not cover the opportunity cost of capital.
, Correct Answer: A) Project X should be rejected because its IRR is less than the WACC.
B) Project Y should be accepted because its IRR equals the WACC, resulting in a Net Present Value
(NPV) of zero.
C) Project Z should be accepted because it adds value to the firm, generating a return higher than the
cost of capital.
Explanation / Rationale:
The WACC represents the hurdle rate or the minimum required return for a project. In capital
budgeting, any project with an IRR less than the WACC destroys value (negative NPV) and should be
rejected. Therefore, Project X (8.5% < 9.5%) should be rejected. If a project's IRR equals the WACC, the
project generates a return exactly equal to the cost of the capital used to fund it. Theoretically, this
results in an NPV of zero, meaning the project is at the break-even point in terms of value creation; it
neither adds nor destroys value, and the firm is indifferent to accepting it. Option B is correct in this
context. Project Z has an IRR greater than the WACC, indicating it generates excess returns (positive
NPV) and should be accepted. Option D is incorrect because while an NPV of zero adds no value, it also
does not fail to cover the opportunity cost; the return exactly matches the required return. In many
academic and practical scenarios, a project with an NPV of zero may be accepted if it has strategic
value or intangible benefits, but strictly financially, the firm is indifferent.
Miller Corporation is trying to determine its optimal capital structure. The company has gathered the
following data:
At a Debt/Equity ratio of 0.2, the cost of debt is 6%, and the cost of equity is 12%.
At a Debt/Equity ratio of 0.8, the cost of debt is 8%, and the cost of equity is 16%.
Assume the corporate tax rate is 30%.
Which of the following calculations represents the correct Weighted Average Cost of Capital (WACC)
for the capital structure with a Debt/Equity ratio of 0.8?
A) WACC = (0.8 × 8% × (1 - 0.3)) + (0.2 × 16%)
B) WACC = (0.44 × 8% × (1 - 0.3)) + (0.56 × 16%)
C) WACC = (0.8 × 8%) + (0.2 × 16%)
D) WACC = (0.2 × 8% × (1 - 0.3)) + (0.8 × 16%)
