WGU - C214: Financial Management Exam Questions and Answers

WGU - C214: Financial Management Exam Questions and Answers If accounts receivable increases, what is the impact on CFO? - Answer- CFO decreases Are actual taxes paid the same as how on the GAAP income statement? - Answer- No. Actual Taxes = IRS Rules Income Statement = GAAP Which decisions require using subjective estimates? - Answer- Economic life of a new asset. If there is a 30% change of a recession, what is the probability of expansion? - Answer- 70% *The sum of probabilities must equal 100% How much interest is paid on a 6% bond over 2 years and 3 months? - Answer- 2 years and 3 months: 2 + (3/12) = 2 + (.25) = 2.25 6% x 1,000 = $60 per year $60 x 2.25 = $135 How does a "prudent investor" select investments? - Answer- Seeks the highest return for "appropriate" amount of risk. What do points on the Efficient Frontier measure? - Answer- The maximum return for a given level of risk; maximum Return-to-Risk ratio. What is "Beta?" - Answer- Measure of a stock's risk relative to the market. Why are accurate forecasts important? - Answer- Plan for resources for production; accurate evaluation of capital projects. Which ratio is used in valuing a private company? - Answer- PE ratio in the "Comparable Multiples" method. What are 3 costs associated with holding inventory? - Answer- 1. Product 2. Storage 3. Opportunity What risk is eliminated by a diversified portfolio? - Answer- Idiosyncratic Risk - Risk affecting a single firm. What are the impacts of outsourcing? - Answer- Fewer U.S. jobs and lower priced products. What are the impacts of tariffs? - Answer- More U.S. jobs and higher product costs for consumers. What securities are exempt from FEDERAL income taxation? - Answer- Municipal bond interest is tax-exempt. Treasury securities ARE taxable. Why would a firm prefer to issue bonds rather than stock? - Answer- Debt has a lower required return. Debt interest is tax deductible. What is the impact on the APY as the number of interest payments per year increase? - Answer- APY increases What is the present value of future cash flows of a stock called? - Answer- Intrinsic Value - The "real" value of the stock. PV of cash to investo