WGU C214 Concepts Only Multi Choice Version Rated A+

WGU C214 Concepts Only Multi Choice Version Rated A+ Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F) Ans- False Stocks and bonds are two types of financial instruments (T/F) Ans- True The matching principle in accrual accounting requires that: Ans- Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized. A basic equation for the balance sheet is: Ans- Equity = Assets - Liabilities Why is the Balance Sheet known as a permanent statement? Ans- Because the other statements are reset at the end of the fiscal year How do you calculate the change in Retained Earnings? Ans- Net Income - Dividends Which of the following is generally true? Ans- Operating Income and EBIT are the same Which components are part of total assets? Ans- Cash Accounts Receivable, Inventory, Long Term Assets Which components are part of current assets? Ans- Inventory, Cash, Accounts Receivable, Short Term Investments Which components are part of Total Liabilities? Ans- Bonds, Accounts Payable, Mortgage When Fixed Assets increase what happens to Cash? Ans- Cash decreases Which is the purpose of the statement of cash flows? Ans- explains the change in cash balance for one period of time The OIROI (Operating Income Return on Investment) uses what elements on the income statement? Ans- EBIT, Total Assets Why would a company be interested in the TAT-Total Asset Turnover-ratio? a Ans- How efficient assets are at producing sales Which of the following gives the largest effective rate (APY) Ans- 18.6% compounded daily What does the beta coefficient represent? Ans- It is a statistically-derived measure of volatility Why is depreciation expense taken out of the net income calculation, yet added back at the end? AnsBecause depreciation expense is tax deductible Why is the NPV preferred over the IRR? Pick Two Ans- 1-It measures the dollar value 2- It is harder to calculate What does the Degree of Financial Leverage indicate? Ans- The reliance on debt If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile? Ans- Higher profits to shareholders What is the cash cycle? Ans- The amount of time to regenerate cash Why is float important to understand? Ans- To time cash expenditures What should a company do to manage its working capital? Ans- Collect quickly and pay slowly What would be a source of information to determine Replacement Cost? Ans- Building Appraisal What does the Sarbanes-Oxley Act require companies to do? Ans- Have internal control audits FINRA (Financial Industry Regulatory Authority) does the following: (pick one) Ans- Prosecutes naughty stock brokers If a product is made 100% domestically, what can affect its domestic market? Ans- International competition If a company makes its product in a foreign country where labor costs are much lower, what happens? Ans- Profits go up and domestic employment decreases. If the value of a dollar increases, the price of imports: Ans- Decreases Why would a farmer buy a hedge when he signs a contract to sell produce overseas? Ans- To reduce currency risk A basic equation for the balance sheet is: Ans- Equity = Assets - Liabilities Why is the Balance Sheet known as a permanent statement? Ans- Because the other statements are reset at the end of the fiscal year How do you calculate the change in Retained Earnings? Ans- Net Income - Dividends Which of the following is generally true? Ans- Operating Income and EBIT are the same Which components are part of total assets? Ans- Cash Accounts Receivable, Inventory, Long Term Assets Which components are part of current assets? a. Cash, Accounts Receivable, Property Plant & Equipment b. Accounts Receivable, Accounts Payable, Inventory c. Long Term Debt, Property Plant & Equipment, Common Stock d. Inventory, Cash, Accounts Receivable, Short Term Investments Ans- Inventory, Cash, Accounts Receivable, Short Term Investments Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? Ans- The firm has too little inventory resulting in lost sales or stockouts. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? Ans- higher If an investor knows the idiosyncratic risk, the investor knows the: Ans- Beta Coefficient Why would we reject a project based on the NPV? Ans- the NPV is a negative number Why would we reject a project based on the IRR? Ans- the discount rate is higher than the IRR Company A wishes to keep 20% of its assets as cash. Company B keeps its cash balance at 5% of assets. Which of the following statements apply? Ans- company B invest in more working current assets Company A offers trade credit of 2% 10 / net 30 and Company B offers trade credit at net 30. What can be said about the credit policies of each company? Ans- company A can attract more customers Which of the following characterizes collection float Ans-