C214 Financial Management WGU Test Questions And Answers

C214 Financial Management WGU Test Questions And Answers Net Income = - ANSWER Revenues - Expenses Revenues - Cost of Goods Sold (COGS) - ANSWER Gross Profit Gross Profit - Operating Expenses - ANSWER EBIT EBIT = - ANSWER Sales - Costs - Depreciation EBIT = - ANSWER Operating Profit or Operating Income EBIT - Interest Expense = - ANSWER Earnings Before Taxes Earnings before Taxes - Tax Expense = - ANSWER Net Income (NI) Retained Earnings - ANSWER End RE = Beg RE + NI - Dividends END RE = - ANSWER Beg RE + (Sales Revenue X Margin%) - Dividend Payout Ratio x (Sales Revenue X Margin %) Assets = - ANSWER Liabilities + Owner's Equity Equity = - ANSWER Assets - Liabilities State of Cash Flows - ANSWER Shows the change in cash balance for a period of time Cash Flow from Operating Activities (CFO) - ANSWER Net Income + Depreciation + Decrease in operating assets - increase in current assets - decrease in current liabilities + increase in current liabilities. Most common operating asset - ANSWER Accounts Receivable Most common operating liability - ANSWER Accounts Payable Cash Flow from Investing (CFI) - ANSWER Investing activities in Property, Plant and Equipment (PP&E) CFI = - ANSWER Gross PP&E end - Gross PP&E Beg CFI = - ANSWER Net Change in PP&E(Current PP&E - Last Year PP&E) + Depreciation for Current Year Cash Flow from Financing (CFF) - ANSWER Cash generated from financial activities CFF = - ANSWER Net change in common stock + net change in long term liabilities - Dividends Gordon Growth Model (GGM) - ANSWER Growth Rate and Dividends Vo (Value Today) = - ANSWER D1 (dividend at eoy) / Kcs(required or expected rate of return) - g (growth rate) Kcs (required or expected rate of return) = - ANSWER D1 ( dividend at EOY)/ Vo(value today) + g (growth rate) D1 (dividend at EOY) = - ANSWER Do (Dividend now) x (1 + g(growth) Vps (value of preferred stock) = - ANSWER D(always the same for PS)/ Kps (required or expected rate of return) Capital Asset Pricing Model - ANSWER CAPM Capital Asset Pricing Model (CAPM) - ANSWER a model that relates the required rate of return on a security to its systematic risk as measured by beta Efficient Frontier - ANSWER Ratio that maximizes expected returns for a given level of risk Efficient Market Hypothesis (EMH) - ANSWER Sophisticated investors will look at the stock and first forecast the cash flow that the stock will generate for the foreseeable future then will calculate the PV of the cash flows, that is how the price is determined. Capital Budgeting - ANSWER Long term investment decisions, the process used in making investment decisions involving projects that generate cash flows over a multi- year time horizon Initial Outlay = - ANSWER costs of assets + shipping costs + Working capital Initial Outlay (IO) = - ANSWER Purchase price of new equipment + shipping and handling + WC Initial Outlay - ANSWER Purchase price of the asset (usually negative) + S&H = Depreciable Asset + Old asset price + WC +/- tax or gain or loss (salvage) Salvage Value = - ANSWER Old asset price sold -/+ book value X tax rate Differential Cash Flow(DCF) - ANSWER Incremental Tax flow generated every year DFN (Discretionary Finance Needed) = - ANSWER After Tax Income + Depreciation TCF (Terminal Cash Flow - ANSWER After Tax Proceeds from sale of assets and release of working capital TCF (Terminal Cash Flow) = - ANSWER After tax proceeds from sale of asset + release of working capital TCF - ANSWER Realizable Salvage Value +/- tax effects + Working Capital NPV - ANSWER Present value of after tax net cash flows NPV - ANSWER Most commonly used method of Capital Budgeting NPV - ANSWER Considers TVM, Results in a decision NPV - ANSWER Ignores length of time to recover capital, difficult to compare, reported in dollars IRR ( Internal Rate of Return) - ANSWER Discount rate that results in Zero NPV IRR - ANSWER Considers TVM IRR - ANSWER Assumes reinvestment at a constant rate, ignores uneven cash flows Free Cash Flow Method/Financing (FCFF) = - ANSWER EBIT x (1- tax rate) + Depreciation - Change in Net Working Capital (CAPEX) - Investment in PP&E (Increases in NWC) FCFF - ANSWER Free Cash Flow to the Firm EBIT - ANSWER earnings before interest and taxes