WGU C214 OA QUESTIONS AND ANSWER
CHECKLIST ALL CORRECT
Which will be larger: actual taxes payable or accounting income tax expense
Correct Answer: Accounting tax expense will be higher; actual taxes based on IRS
rules will be lower
Which cash flow measures the change in long term assets? Correct Answer: Cash
flow investing
Which financial ratios measure "efficiency"? Correct Answer: Asset turnover and
Fixed Asset turnover
Which ratio is the best measure of a firm's ability to pay bills? Correct Answer:
Quick ratio
Which decision requires using subjective estimates? Correct Answer: Useful
(depreciable) life of a new asset
What is the yield to maturity of a bond? Correct Answer: The return earned from
purchase date to maturity
If a bond pays $50 interest per year and yields 4%, what is its price? Correct
Answer: Premium price; i.e. $50 interest = 5% coupon; if Coupon>Yield,
premium price
If a firm buys a 90-day Treasury bill, where is it carried on the balance sheet?
Correct Answer: Current asset
How does a "prudent investor" select investments? Correct Answer: Seeks the
highest return for "reasonable" amount of risk
What is added to net income to derive net cash flow? Correct Answer:
Depreciation expense
What is the difference between WACC and CAPM's required return? Correct
Answer: CAPM includes only equity required return; WACC includes debt &
equity
, What do points on the Efficient Frontier measure? Correct Answer: The maximum
return for a given level of risk; maximum Return-to-risk ratio
What is Beta? Correct Answer: Measure of volatility of a stock's risk relative to
the market
Why are accurate forecasts important? Correct Answer: Plan for resources to
support sales
Which leverage measure shows the impact of EBIT changes on pre-tax profit
Correct Answer: Financial leverage
Which ratios are used in working capital management? Correct Answer: Cash
ratio, Current ratio
Which ratio is used in valuing a private company? Correct Answer: PE ratio
What are the 3 costs associated with holding inventory? Correct Answer:
Opportunity, product, and storage
What risk is eliminated by a diversified portfolio? Correct Answer: Idiosyncratic
risk
What is the "secondary market"? Correct Answer: Investors trading securities
among themselves after initial issuance of securities
What are the impacts of outsourcing? Correct Answer: Fewer jobs and lower
priced products
What are the impacts of tariffs? Correct Answer: Protects inefficient firms and
employees; higher product costs
Which item is transferred from the income statement to the balance sheet? Correct
Answer: Depreciation expense
If two companies use different inventory valuation methods, what is that called?
Correct Answer: An accounting difference
CHECKLIST ALL CORRECT
Which will be larger: actual taxes payable or accounting income tax expense
Correct Answer: Accounting tax expense will be higher; actual taxes based on IRS
rules will be lower
Which cash flow measures the change in long term assets? Correct Answer: Cash
flow investing
Which financial ratios measure "efficiency"? Correct Answer: Asset turnover and
Fixed Asset turnover
Which ratio is the best measure of a firm's ability to pay bills? Correct Answer:
Quick ratio
Which decision requires using subjective estimates? Correct Answer: Useful
(depreciable) life of a new asset
What is the yield to maturity of a bond? Correct Answer: The return earned from
purchase date to maturity
If a bond pays $50 interest per year and yields 4%, what is its price? Correct
Answer: Premium price; i.e. $50 interest = 5% coupon; if Coupon>Yield,
premium price
If a firm buys a 90-day Treasury bill, where is it carried on the balance sheet?
Correct Answer: Current asset
How does a "prudent investor" select investments? Correct Answer: Seeks the
highest return for "reasonable" amount of risk
What is added to net income to derive net cash flow? Correct Answer:
Depreciation expense
What is the difference between WACC and CAPM's required return? Correct
Answer: CAPM includes only equity required return; WACC includes debt &
equity
, What do points on the Efficient Frontier measure? Correct Answer: The maximum
return for a given level of risk; maximum Return-to-risk ratio
What is Beta? Correct Answer: Measure of volatility of a stock's risk relative to
the market
Why are accurate forecasts important? Correct Answer: Plan for resources to
support sales
Which leverage measure shows the impact of EBIT changes on pre-tax profit
Correct Answer: Financial leverage
Which ratios are used in working capital management? Correct Answer: Cash
ratio, Current ratio
Which ratio is used in valuing a private company? Correct Answer: PE ratio
What are the 3 costs associated with holding inventory? Correct Answer:
Opportunity, product, and storage
What risk is eliminated by a diversified portfolio? Correct Answer: Idiosyncratic
risk
What is the "secondary market"? Correct Answer: Investors trading securities
among themselves after initial issuance of securities
What are the impacts of outsourcing? Correct Answer: Fewer jobs and lower
priced products
What are the impacts of tariffs? Correct Answer: Protects inefficient firms and
employees; higher product costs
Which item is transferred from the income statement to the balance sheet? Correct
Answer: Depreciation expense
If two companies use different inventory valuation methods, what is that called?
Correct Answer: An accounting difference
