WGU - C214 Financial Management – Final
2023| 55 Questions and Answers| Graded A+
Statement of Cash Flows - -Shows the change in cash balance for a period of time.
Focuses only on items where cash is received, or cash is paid.
-Cash Flow from Operating Activities (CFO) - -Cash flow that a company generates as a
result of day-to-day business operations. Deals with Current Assets and Current
Liabilities.
-Cash Flow from Investing Activities (CFI) - -Cash flow that is generated from
investments in long term assets.
-Cash Flow from Financing Activities (CFF) - -Cash flow that is used to fund the
company. Cash flow that is generated from financing the business. Includes Debt &
Equity.
-How does an increase in Accounts receivable impact CFO? - -An Increase in Accounts
receivable will decrease CFO
-How does an increase in Accounts payable impact CFO? - -An Increase in Accounts
Payable will increase CFO
-What financial statement is prepared at a point in time - -Balance Sheet
-What financial statements are prepared for a period of time? - -· Income Statement
· Retained Earnings Statement
· Statement of Cash Flows
-Define Efficient Frontier - -Maximizes expected return for a given level of risk
-Where would a risk averse investor fall on the efficient frontier? - -100% Bonds
-Where would a risk-taking investor fall on the efficient frontier? - -100% Stocks
-What is a Beta? - -A Measure of Risk - A Beta 1 is the average risk of all stocks.
Anytime a beta is below 1, it is less risk. If it is more than 1, it is high risk.
-Define efficient market hypothesis as it relates to a firm? - -For any company to
survive, they need to make profitable decisions. Otherwise, investors will shun their
business. The firm needs to invest where the return is more than the cost.
-What is the intrinsic value of a stock under efficient market hypothesis? - -The
intrinsic value of stock is the present value of the stock's after tax net cash flows.
, -Whenever the question states that dividend was paid recently or was just paid, what
must be calculated first? - -Expected Dividend
-For every Bond question, what must be entered? - -FV must be entered as 1000
PMT must be entered as 1000 x Coupon Rate
-What is Capital Budgeting? - -Refers to long term investment decision making.
Refers to the process used in making investment decisions involving projects that
generate cash flows over a multi-year horizon.
-What information is needed for capital budgeting? - -Initial Outlay
(How much money the company is going to invest in the company right now)
Differential Annual Cash Flows
(Cash flow that the project will generate year after year)
Terminal Cash Flow
(Cash flow generated at the end of the project)
-Define NPV? - -Net Present Value method is the method that is universally used by
companies to evaluate long term investment decisions.
NPV is defined as the present value of after-tax net tax flows and is most common used
method in capital budgeting.
The Net Present value should be positive in order for a company to proceed with an
investment. If it is negative, the company should not proceed.
-Define IRR? - -Another method used for long term investment decisions is the
internal rate of return (IRR) method. This method is considered inferior to NPV.
Internal Rate of Return (IRR) is defined as the discount rate that results in a Zero Net
Present Value.
-Define Free Cash Flow - -Cash flows from operating activities minus cash necessary
for reinvestment in PPE. Free cash flows represent Cash available for distribution after
funding required reinvestment
-What ratio is used to value a firm using the comparables method? - -P/E Ratio or
Price/Earnings Ratio
-Define WACC - -Weighted Average Cost of Capital. The WACC is the weighted average
of the various costs of equity and costs of debt.
-How does a rating downgrade/upgrade impact the cost of capital? - -A positive credit
rating lowers the cost of capital and a negative credit rating increases the cost of capital.
-Define DFN - -Discretionary Financing Needed. The difference between total assets
and total liabilities and owner's equity is referred to as discretionary financing needed.
In other words, this is the amount of discretionary financing that the firm thinks it will
need to raise in the next year.
2023| 55 Questions and Answers| Graded A+
Statement of Cash Flows - -Shows the change in cash balance for a period of time.
Focuses only on items where cash is received, or cash is paid.
-Cash Flow from Operating Activities (CFO) - -Cash flow that a company generates as a
result of day-to-day business operations. Deals with Current Assets and Current
Liabilities.
-Cash Flow from Investing Activities (CFI) - -Cash flow that is generated from
investments in long term assets.
-Cash Flow from Financing Activities (CFF) - -Cash flow that is used to fund the
company. Cash flow that is generated from financing the business. Includes Debt &
Equity.
-How does an increase in Accounts receivable impact CFO? - -An Increase in Accounts
receivable will decrease CFO
-How does an increase in Accounts payable impact CFO? - -An Increase in Accounts
Payable will increase CFO
-What financial statement is prepared at a point in time - -Balance Sheet
-What financial statements are prepared for a period of time? - -· Income Statement
· Retained Earnings Statement
· Statement of Cash Flows
-Define Efficient Frontier - -Maximizes expected return for a given level of risk
-Where would a risk averse investor fall on the efficient frontier? - -100% Bonds
-Where would a risk-taking investor fall on the efficient frontier? - -100% Stocks
-What is a Beta? - -A Measure of Risk - A Beta 1 is the average risk of all stocks.
Anytime a beta is below 1, it is less risk. If it is more than 1, it is high risk.
-Define efficient market hypothesis as it relates to a firm? - -For any company to
survive, they need to make profitable decisions. Otherwise, investors will shun their
business. The firm needs to invest where the return is more than the cost.
-What is the intrinsic value of a stock under efficient market hypothesis? - -The
intrinsic value of stock is the present value of the stock's after tax net cash flows.
, -Whenever the question states that dividend was paid recently or was just paid, what
must be calculated first? - -Expected Dividend
-For every Bond question, what must be entered? - -FV must be entered as 1000
PMT must be entered as 1000 x Coupon Rate
-What is Capital Budgeting? - -Refers to long term investment decision making.
Refers to the process used in making investment decisions involving projects that
generate cash flows over a multi-year horizon.
-What information is needed for capital budgeting? - -Initial Outlay
(How much money the company is going to invest in the company right now)
Differential Annual Cash Flows
(Cash flow that the project will generate year after year)
Terminal Cash Flow
(Cash flow generated at the end of the project)
-Define NPV? - -Net Present Value method is the method that is universally used by
companies to evaluate long term investment decisions.
NPV is defined as the present value of after-tax net tax flows and is most common used
method in capital budgeting.
The Net Present value should be positive in order for a company to proceed with an
investment. If it is negative, the company should not proceed.
-Define IRR? - -Another method used for long term investment decisions is the
internal rate of return (IRR) method. This method is considered inferior to NPV.
Internal Rate of Return (IRR) is defined as the discount rate that results in a Zero Net
Present Value.
-Define Free Cash Flow - -Cash flows from operating activities minus cash necessary
for reinvestment in PPE. Free cash flows represent Cash available for distribution after
funding required reinvestment
-What ratio is used to value a firm using the comparables method? - -P/E Ratio or
Price/Earnings Ratio
-Define WACC - -Weighted Average Cost of Capital. The WACC is the weighted average
of the various costs of equity and costs of debt.
-How does a rating downgrade/upgrade impact the cost of capital? - -A positive credit
rating lowers the cost of capital and a negative credit rating increases the cost of capital.
-Define DFN - -Discretionary Financing Needed. The difference between total assets
and total liabilities and owner's equity is referred to as discretionary financing needed.
In other words, this is the amount of discretionary financing that the firm thinks it will
need to raise in the next year.
