WGU C214 Financial Management OA Study
Set exam 2023|142 Questions and Answers
Graded A+
Trading on the NYSE is executed without a specialist (i.e. a market maker). True or
False? - -False
-Stocks and Bonds are two types of financial instruments. True or False? - -True
-When revenue is matched with cost of sales in an Income statement it is called? - -
Matching principle
-Basic balance sheet equation is what? - -Equity = Assets - Liabilities
-Why is the balance sheet known as the permanent statement? - -Because the other
statements are reset at the end of the fiscal year.
-How do you calculate the change in retained earnings? - -Net income-dividends
-Sales - Cost of Sales - other expenses = - -Operating Income or EBiT
-Name four accounts that are part of total assets? - -Cash, Accounts receivable,
inventory, long term assets
-Name three accounts that are part of total liabilities? - -Bonds, accounts payable and
mortgage
-Name four accounts that are part of current assets? - -Inventory, cash, accounts
receivable and short term investments.
-Name three accounts that are only included in cash flow from financing? - -Common
stock, dividends paid and bonds payable
-Define the statement of cash flows? - -Calculated for the same period of time as the
incomes statement is calculated based on the income statement and changes in the
balance sheet is one of the three basic accounting statements.
-When fixed assets increase what happens to cash? - -Cash will decrease
-What is the purpose of the statement of cash flows? - -Explains the change in cash
over the course of the specified time frame.
-Suppose the inventory turnover of a company is higher than the industry. Based on
this observation, which of the following is most likely? - -The firm has too little
inventory resulting in lost sales or stock-outs.
, -If a company wishes to obtain a bank loan, will it want to have a higher current ratio or
a lower current ratio? - -Higher
-The Operating Income Return on Investment (OIROI) uses what elements on the
income statement? - -EBIT and total assets
-Why would a company be interested in the Total Asset Turnover (TAT) ratio? - -To see
how efficient are at producing sales
-What annual interest will be paid for a zero coupon bond? - -0%
-What is the most significant characteristic of subordinated debt? - -Senior debt is paid
off first
-If a company wants to increase its debt capital, how will they raise the funds? - -Sell
bonds
-What is the lowest level investment bond - -BBB
-What can cause the bond price to fluctuate? - -A change in the bond rating, a change
in the financial condition, general change in interest rates.
-What does a company use as security for a bond? - -Credit worthiness
-Under the efficient market hypothesis, what will companies endeavor to do? - -
Maximize profits for a given level of risk
-What does the beta coefficient represent? - -It is a statistically derived measure of
volatility.
-If an investor knows the idiosyncratic risk, the investor knows the? - -Beta Coefficient
-Why is the depreciation expense taken out of the net income calculation, yet added
back at the end? - -Because depreciation expense is tax deductible.
-Why would we reject a project based on NPV? - -The NPV is a negative number
-Why would we reject a project based on IRR? - -The discount rate is higher than the
IRR
-What are two key elements of differential cash flow? - -Depreciation expense and net
income
-Why is the NPV preferred over the IRR? - -It measures the dollar value and is more
reliable.
Set exam 2023|142 Questions and Answers
Graded A+
Trading on the NYSE is executed without a specialist (i.e. a market maker). True or
False? - -False
-Stocks and Bonds are two types of financial instruments. True or False? - -True
-When revenue is matched with cost of sales in an Income statement it is called? - -
Matching principle
-Basic balance sheet equation is what? - -Equity = Assets - Liabilities
-Why is the balance sheet known as the permanent statement? - -Because the other
statements are reset at the end of the fiscal year.
-How do you calculate the change in retained earnings? - -Net income-dividends
-Sales - Cost of Sales - other expenses = - -Operating Income or EBiT
-Name four accounts that are part of total assets? - -Cash, Accounts receivable,
inventory, long term assets
-Name three accounts that are part of total liabilities? - -Bonds, accounts payable and
mortgage
-Name four accounts that are part of current assets? - -Inventory, cash, accounts
receivable and short term investments.
-Name three accounts that are only included in cash flow from financing? - -Common
stock, dividends paid and bonds payable
-Define the statement of cash flows? - -Calculated for the same period of time as the
incomes statement is calculated based on the income statement and changes in the
balance sheet is one of the three basic accounting statements.
-When fixed assets increase what happens to cash? - -Cash will decrease
-What is the purpose of the statement of cash flows? - -Explains the change in cash
over the course of the specified time frame.
-Suppose the inventory turnover of a company is higher than the industry. Based on
this observation, which of the following is most likely? - -The firm has too little
inventory resulting in lost sales or stock-outs.
, -If a company wishes to obtain a bank loan, will it want to have a higher current ratio or
a lower current ratio? - -Higher
-The Operating Income Return on Investment (OIROI) uses what elements on the
income statement? - -EBIT and total assets
-Why would a company be interested in the Total Asset Turnover (TAT) ratio? - -To see
how efficient are at producing sales
-What annual interest will be paid for a zero coupon bond? - -0%
-What is the most significant characteristic of subordinated debt? - -Senior debt is paid
off first
-If a company wants to increase its debt capital, how will they raise the funds? - -Sell
bonds
-What is the lowest level investment bond - -BBB
-What can cause the bond price to fluctuate? - -A change in the bond rating, a change
in the financial condition, general change in interest rates.
-What does a company use as security for a bond? - -Credit worthiness
-Under the efficient market hypothesis, what will companies endeavor to do? - -
Maximize profits for a given level of risk
-What does the beta coefficient represent? - -It is a statistically derived measure of
volatility.
-If an investor knows the idiosyncratic risk, the investor knows the? - -Beta Coefficient
-Why is the depreciation expense taken out of the net income calculation, yet added
back at the end? - -Because depreciation expense is tax deductible.
-Why would we reject a project based on NPV? - -The NPV is a negative number
-Why would we reject a project based on IRR? - -The discount rate is higher than the
IRR
-What are two key elements of differential cash flow? - -Depreciation expense and net
income
-Why is the NPV preferred over the IRR? - -It measures the dollar value and is more
reliable.
