WGU C214 Financial Management OA Study Set.
Questions and Answers With Complete Solution updated
2024.
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.
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in
profitability?
Higher leverage leads to higher profitability for a given sale level.
What does the degree of financial leverage indicate?
The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about
the firms risk profile?
Financial leverage also means that more financing is done through debt, not equity.
Higher profits to shareholders.
What is the cash cycle?
The amount of time to regenerate cash.
Why is float important to understand?
To time cash expenditures
Questions and Answers With Complete Solution updated
2024.
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.
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in
profitability?
Higher leverage leads to higher profitability for a given sale level.
What does the degree of financial leverage indicate?
The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about
the firms risk profile?
Financial leverage also means that more financing is done through debt, not equity.
Higher profits to shareholders.
What is the cash cycle?
The amount of time to regenerate cash.
Why is float important to understand?
To time cash expenditures
