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WGU C214 OA Financial
Management Retake Exam
Questions (2025/2026)
Question 1
What is the primary goal of capital budgeting in a corporation?
A. Minimizing operational costs
B. Maximizing shareholder value through long-term investments
C. Reducing short-term liabilities
D. Increasing annual dividends
Correct Answer: B. Maximizing shareholder value through long-term investments
Rationale: Capital budgeting involves evaluating long-term investment projects to determine
which ones enhance firm value, aligning with the goal of maximizing shareholder wealth by
selecting projects with positive net present value (NPV) or high internal rate of return (IRR).
Question 2
A project requires an initial investment of $500,000 and is expected to generate $150,000
annually for 5 years. If the discount rate is 8%, what is the net present value (NPV)?
A. $59,433
B. $99,433
C. $149,433
D. -$59,433
Correct Answer: B. $99,433
Rationale: NPV is calculated as the present value of cash inflows minus the initial investment.
Using the formula for the present value of an annuity: PV = C × [(1 - (1 + r)^-n) / r], where C =
$150,000, r = 0.08, n = 5, the PV of inflows is $599,433. Subtracting the initial investment
($500,000) gives NPV = $599,433 - $500,000 = $99,433.
Question 3
, 2
Which method of capital budgeting ignores the time value of money?
A. Net Present Value (NPV)
B. Internal Rate of Return (IRR)
C. Payback Period
D. Profitability Index (PI)
Correct Answer: C. Payback Period
Rationale: The payback period method calculates the time required to recover the initial
investment but does not discount future cash flows, ignoring the time value of money. NPV,
IRR, and PI all incorporate discounting to account for the time value of money.
Question 4
A company is evaluating a project with an IRR of 12% and a cost of capital of 10%. Should the
project be accepted?
A. Yes, because IRR exceeds the cost of capital
B. No, because IRR is too low
C. Yes, because IRR equals the cost of capital
D. No, because IRR is not relevant
Correct Answer: A. Yes, because IRR exceeds the cost of capital
Rationale: A project should be accepted if its IRR exceeds the cost of capital, as this indicates
the project’s return is higher than the required return, adding value to the firm. Here, 12% IRR >
10% cost of capital, so the project is acceptable.
Question 5
What does the time value of money concept assume about cash flows?
A. Cash flows are constant over time
B. Money received today is worth more than money received in the future
C. Future cash flows are always certain
D. Inflation has no impact on cash flows
Correct Answer: B. Money received today is worth more than money received in the future
Rationale: The time value of money (TVM) principle states that a dollar today is worth more
than a dollar in the future due to its potential to earn interest or returns, reflecting the opportunity
cost of money over time.
Question 6
, 3
An investment pays $5,000 annually for 8 years, with a discount rate of 6%. What is the present
value of this annuity?
A. $31,133
B. $29,433
C. $34,672
D. $36,122
Correct Answer: A. $31,133
Rationale: The present value of an ordinary annuity is calculated as PV = C × [(1 - (1 + r)^-n) /
r], where C = $5,000, r = 0.06, n = 16. Using a financial calculator or formula: PV = $5,000 ×
6.228 = $31,133.
Question 7
What is the future value of $10,000 invested today at 5% interest compounded annually for 10
years?
A. $15,937
B. $16,289
C. $14,802
D. $17,531
Correct Answer: B. $16,289
Rationale: The future value is calculated as FV = PV × (1 + r)^n, where PV = $10,000, r = 0.05,
n = 10. Thus, FV = $10,000 × (1.05)^10 = $10,000 × 1.6289 = $16,289.
Question 8
Which financial ratio measures a company’s ability to cover short-term obligations with its most
liquid assets?
A. Current Ratio
B. Quick Ratio
C. Debt-to-Equity Ratio
D. Return on Assets
Correct Answer: B. Quick Ratio
Rationale: The quick ratio (acid-test ratio) measures a company’s ability to pay short-term
liabilities using its most liquid assets (cash, marketable securities, and receivables), excluding
inventory, which may not be quickly convertible to cash.
WGU C214 OA Financial
Management Retake Exam
Questions (2025/2026)
Question 1
What is the primary goal of capital budgeting in a corporation?
A. Minimizing operational costs
B. Maximizing shareholder value through long-term investments
C. Reducing short-term liabilities
D. Increasing annual dividends
Correct Answer: B. Maximizing shareholder value through long-term investments
Rationale: Capital budgeting involves evaluating long-term investment projects to determine
which ones enhance firm value, aligning with the goal of maximizing shareholder wealth by
selecting projects with positive net present value (NPV) or high internal rate of return (IRR).
Question 2
A project requires an initial investment of $500,000 and is expected to generate $150,000
annually for 5 years. If the discount rate is 8%, what is the net present value (NPV)?
A. $59,433
B. $99,433
C. $149,433
D. -$59,433
Correct Answer: B. $99,433
Rationale: NPV is calculated as the present value of cash inflows minus the initial investment.
Using the formula for the present value of an annuity: PV = C × [(1 - (1 + r)^-n) / r], where C =
$150,000, r = 0.08, n = 5, the PV of inflows is $599,433. Subtracting the initial investment
($500,000) gives NPV = $599,433 - $500,000 = $99,433.
Question 3
, 2
Which method of capital budgeting ignores the time value of money?
A. Net Present Value (NPV)
B. Internal Rate of Return (IRR)
C. Payback Period
D. Profitability Index (PI)
Correct Answer: C. Payback Period
Rationale: The payback period method calculates the time required to recover the initial
investment but does not discount future cash flows, ignoring the time value of money. NPV,
IRR, and PI all incorporate discounting to account for the time value of money.
Question 4
A company is evaluating a project with an IRR of 12% and a cost of capital of 10%. Should the
project be accepted?
A. Yes, because IRR exceeds the cost of capital
B. No, because IRR is too low
C. Yes, because IRR equals the cost of capital
D. No, because IRR is not relevant
Correct Answer: A. Yes, because IRR exceeds the cost of capital
Rationale: A project should be accepted if its IRR exceeds the cost of capital, as this indicates
the project’s return is higher than the required return, adding value to the firm. Here, 12% IRR >
10% cost of capital, so the project is acceptable.
Question 5
What does the time value of money concept assume about cash flows?
A. Cash flows are constant over time
B. Money received today is worth more than money received in the future
C. Future cash flows are always certain
D. Inflation has no impact on cash flows
Correct Answer: B. Money received today is worth more than money received in the future
Rationale: The time value of money (TVM) principle states that a dollar today is worth more
than a dollar in the future due to its potential to earn interest or returns, reflecting the opportunity
cost of money over time.
Question 6
, 3
An investment pays $5,000 annually for 8 years, with a discount rate of 6%. What is the present
value of this annuity?
A. $31,133
B. $29,433
C. $34,672
D. $36,122
Correct Answer: A. $31,133
Rationale: The present value of an ordinary annuity is calculated as PV = C × [(1 - (1 + r)^-n) /
r], where C = $5,000, r = 0.06, n = 16. Using a financial calculator or formula: PV = $5,000 ×
6.228 = $31,133.
Question 7
What is the future value of $10,000 invested today at 5% interest compounded annually for 10
years?
A. $15,937
B. $16,289
C. $14,802
D. $17,531
Correct Answer: B. $16,289
Rationale: The future value is calculated as FV = PV × (1 + r)^n, where PV = $10,000, r = 0.05,
n = 10. Thus, FV = $10,000 × (1.05)^10 = $10,000 × 1.6289 = $16,289.
Question 8
Which financial ratio measures a company’s ability to cover short-term obligations with its most
liquid assets?
A. Current Ratio
B. Quick Ratio
C. Debt-to-Equity Ratio
D. Return on Assets
Correct Answer: B. Quick Ratio
Rationale: The quick ratio (acid-test ratio) measures a company’s ability to pay short-term
liabilities using its most liquid assets (cash, marketable securities, and receivables), excluding
inventory, which may not be quickly convertible to cash.
