Western Governors University
2 TES • 412C
WGU College of Business — Financial Management
A NEW KIND OF U.
EST. 1997
C214 — Financial Management: Additional Practice Set
A D VA N C E D F I N A N C E CO N C E PTS & C A LCU L AT I O N S A SS E SS M E N T
INSTITUTION Western Governors University EXAM CODE WGU-C214-FIN2-2026
PROGRAM BS Business — Financial Management ACADEMIC YEAR
EXAM TITLE C214 — Additional Practice Questions (Set TOTAL QUESTIONS 88 Questions
2)
COURSE TITLE Financial Management (C214) FORMAT Multiple Choice / Calculation — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Questions cover advanced corporate finance: WACC calculations, CAPM, bond valuation, capital budgeting, financial ratios,
DuPont analysis, efficient frontier, and working capital management.
▸ Distinguish carefully between accounting vs. tax treatments, primary vs. secondary markets, and various leverage measures.
▸ Correct answers and detailed rationales appear below each question for comprehensive review.
▸ All content is derived from WGU C214 Financial Management additional practice question bank.
SECTION I — ADVANCED CORPORATE FINANCE & VALUATION Questions 1 – 88
1. Which will be larger: actual taxes payable or accounting income tax expense?
A. Actual taxes payable will be higher
B. Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
C. They will always be identical
D. Cannot be determined
CORRECT ANSWER B — Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
RATIONALE Accounting income tax expense is calculated using GAAP rules (accrual basis), while actual taxes payable are
calculated using IRS tax rules. Differences arise from accelerated depreciation (MACRS for tax vs. straight-line
for books), timing differences in revenue/expense recognition, and tax credits. These create deferred tax
liabilities on the balance sheet.
,2. Which cash flow measures the change in long-term assets?
A. Cash Flow Operations
B. Cash Flow Investing
C. Cash Flow Financing
D. Change in Cash
CORRECT ANSWER B — Cash Flow Investing
RATIONALE Cash Flow from Investing (CFI) tracks changes in long-term assets: purchases/sales of property, plant &
equipment (PPE), acquisitions of other companies, and purchases/sales of marketable securities. CFI is
typically negative for growing firms as they invest in productive assets.
3. Which financial ratios measure "efficiency"?
A. Current Ratio and Quick Ratio
B. Asset Turnover and Fixed Asset Turnover
C. Return on Equity and Return on Assets
D. Debt Ratio and Times Interest Earned
CORRECT ANSWER B — Asset Turnover and Fixed Asset Turnover
RATIONALE Efficiency ratios measure how well a firm uses its assets to generate sales. Total Asset Turnover = Sales ÷ Total
Assets; Fixed Asset Turnover = Sales ÷ Net Fixed Assets. Higher ratios indicate more efficient asset utilization.
Option A measures liquidity; Option C measures profitability; Option D measures leverage.
4. Which ratio is the best measure of a firm's ability to pay bills?
A. Current Ratio
B. Quick Ratio
C. Debt Ratio
D. Return on Assets
CORRECT ANSWER B — Quick Ratio
RATIONALE The Quick Ratio = (Cash + Marketable Securities + A/R) ÷ Current Liabilities. It is the most conservative
liquidity measure because it excludes inventory — the least liquid current asset. It measures a firm's ability to
meet immediate obligations using only its most liquid assets, without relying on inventory sales.
5. Which decision requires using subjective estimates?
A. Calculating current ratio
B. Useful (depreciable) life of a new asset
C. Recording cash sales
D. Paying accounts payable
CORRECT ANSWER B — Useful (depreciable) life of a new asset
RATIONALE Determining an asset's useful life requires management judgment and estimation — how long will the asset
be productive? This subjective estimate directly affects annual depreciation expense, net income, and asset
book value. The other options involve objective, verifiable data.
, 6. What is the yield to maturity of a bond?
A. The coupon rate stated on the bond
B. The return earned from purchase date to maturity
C. The current yield based on market price
D. The bond's face value at maturity
CORRECT ANSWER B — The return earned from purchase date to maturity
RATIONALE Yield to Maturity (YTM) is the total return anticipated if the bond is held until it matures, accounting for all
coupon payments, the purchase price, the face value at maturity, and the time value of money. It is the
discount rate that equates the present value of all future cash flows to the bond's current market price.
7. If a bond pays $50 interest per year and yields 4%, what is its price?
A. Discount price — below par value
B. Premium price — above par value (Coupon > Yield)
C. Exactly at par value
D. Cannot be determined
CORRECT ANSWER B — Premium price — above par value (Coupon > Yield)
RATIONALE $50 annual interest on a $1,000 par bond = 5% coupon rate. Since the coupon rate (5%) exceeds the market
yield (4%), the bond will trade at a premium above par value. Investors will pay more than $1,000 to receive
the above-market 5% coupon payments. Price ≈ $50/0.04 = $1,250 (perpetuity approximation).
8. If a firm buys a 90-day Treasury bill, where is it carried on the balance sheet?
A. Long-term asset
B. Current asset
C. Shareholders' equity
D. Long-term liability
CORRECT ANSWER B — Current asset
RATIONALE A 90-day Treasury bill matures within one year, so it is classified as a current asset — specifically as a
marketable security or short-term investment. Current assets are expected to be converted to cash or used
within one operating cycle. T-bills are highly liquid, low-risk investments.
9. How does a "prudent investor" select investments?
A. Seeks the highest possible return regardless of risk
B. Seeks the highest return for a "reasonable" amount of risk
C. Invests only in risk-free securities
D. Follows the advice of financial analysts without question
CORRECT ANSWER B — Seeks the highest return for a "reasonable" amount of risk
RATIONALE The prudent investor rule requires fiduciaries to invest assets as a reasonable person would — considering
both return and risk. The goal is to maximize return for a given level of acceptable risk, not to maximize return
at any cost. This aligns with modern portfolio theory and the efficient frontier concept.
2 TES • 412C
WGU College of Business — Financial Management
A NEW KIND OF U.
EST. 1997
C214 — Financial Management: Additional Practice Set
A D VA N C E D F I N A N C E CO N C E PTS & C A LCU L AT I O N S A SS E SS M E N T
INSTITUTION Western Governors University EXAM CODE WGU-C214-FIN2-2026
PROGRAM BS Business — Financial Management ACADEMIC YEAR
EXAM TITLE C214 — Additional Practice Questions (Set TOTAL QUESTIONS 88 Questions
2)
COURSE TITLE Financial Management (C214) FORMAT Multiple Choice / Calculation — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Questions cover advanced corporate finance: WACC calculations, CAPM, bond valuation, capital budgeting, financial ratios,
DuPont analysis, efficient frontier, and working capital management.
▸ Distinguish carefully between accounting vs. tax treatments, primary vs. secondary markets, and various leverage measures.
▸ Correct answers and detailed rationales appear below each question for comprehensive review.
▸ All content is derived from WGU C214 Financial Management additional practice question bank.
SECTION I — ADVANCED CORPORATE FINANCE & VALUATION Questions 1 – 88
1. Which will be larger: actual taxes payable or accounting income tax expense?
A. Actual taxes payable will be higher
B. Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
C. They will always be identical
D. Cannot be determined
CORRECT ANSWER B — Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
RATIONALE Accounting income tax expense is calculated using GAAP rules (accrual basis), while actual taxes payable are
calculated using IRS tax rules. Differences arise from accelerated depreciation (MACRS for tax vs. straight-line
for books), timing differences in revenue/expense recognition, and tax credits. These create deferred tax
liabilities on the balance sheet.
,2. Which cash flow measures the change in long-term assets?
A. Cash Flow Operations
B. Cash Flow Investing
C. Cash Flow Financing
D. Change in Cash
CORRECT ANSWER B — Cash Flow Investing
RATIONALE Cash Flow from Investing (CFI) tracks changes in long-term assets: purchases/sales of property, plant &
equipment (PPE), acquisitions of other companies, and purchases/sales of marketable securities. CFI is
typically negative for growing firms as they invest in productive assets.
3. Which financial ratios measure "efficiency"?
A. Current Ratio and Quick Ratio
B. Asset Turnover and Fixed Asset Turnover
C. Return on Equity and Return on Assets
D. Debt Ratio and Times Interest Earned
CORRECT ANSWER B — Asset Turnover and Fixed Asset Turnover
RATIONALE Efficiency ratios measure how well a firm uses its assets to generate sales. Total Asset Turnover = Sales ÷ Total
Assets; Fixed Asset Turnover = Sales ÷ Net Fixed Assets. Higher ratios indicate more efficient asset utilization.
Option A measures liquidity; Option C measures profitability; Option D measures leverage.
4. Which ratio is the best measure of a firm's ability to pay bills?
A. Current Ratio
B. Quick Ratio
C. Debt Ratio
D. Return on Assets
CORRECT ANSWER B — Quick Ratio
RATIONALE The Quick Ratio = (Cash + Marketable Securities + A/R) ÷ Current Liabilities. It is the most conservative
liquidity measure because it excludes inventory — the least liquid current asset. It measures a firm's ability to
meet immediate obligations using only its most liquid assets, without relying on inventory sales.
5. Which decision requires using subjective estimates?
A. Calculating current ratio
B. Useful (depreciable) life of a new asset
C. Recording cash sales
D. Paying accounts payable
CORRECT ANSWER B — Useful (depreciable) life of a new asset
RATIONALE Determining an asset's useful life requires management judgment and estimation — how long will the asset
be productive? This subjective estimate directly affects annual depreciation expense, net income, and asset
book value. The other options involve objective, verifiable data.
, 6. What is the yield to maturity of a bond?
A. The coupon rate stated on the bond
B. The return earned from purchase date to maturity
C. The current yield based on market price
D. The bond's face value at maturity
CORRECT ANSWER B — The return earned from purchase date to maturity
RATIONALE Yield to Maturity (YTM) is the total return anticipated if the bond is held until it matures, accounting for all
coupon payments, the purchase price, the face value at maturity, and the time value of money. It is the
discount rate that equates the present value of all future cash flows to the bond's current market price.
7. If a bond pays $50 interest per year and yields 4%, what is its price?
A. Discount price — below par value
B. Premium price — above par value (Coupon > Yield)
C. Exactly at par value
D. Cannot be determined
CORRECT ANSWER B — Premium price — above par value (Coupon > Yield)
RATIONALE $50 annual interest on a $1,000 par bond = 5% coupon rate. Since the coupon rate (5%) exceeds the market
yield (4%), the bond will trade at a premium above par value. Investors will pay more than $1,000 to receive
the above-market 5% coupon payments. Price ≈ $50/0.04 = $1,250 (perpetuity approximation).
8. If a firm buys a 90-day Treasury bill, where is it carried on the balance sheet?
A. Long-term asset
B. Current asset
C. Shareholders' equity
D. Long-term liability
CORRECT ANSWER B — Current asset
RATIONALE A 90-day Treasury bill matures within one year, so it is classified as a current asset — specifically as a
marketable security or short-term investment. Current assets are expected to be converted to cash or used
within one operating cycle. T-bills are highly liquid, low-risk investments.
9. How does a "prudent investor" select investments?
A. Seeks the highest possible return regardless of risk
B. Seeks the highest return for a "reasonable" amount of risk
C. Invests only in risk-free securities
D. Follows the advice of financial analysts without question
CORRECT ANSWER B — Seeks the highest return for a "reasonable" amount of risk
RATIONALE The prudent investor rule requires fiduciaries to invest assets as a reasonable person would — considering
both return and risk. The goal is to maximize return for a given level of acceptable risk, not to maximize return
at any cost. This aligns with modern portfolio theory and the efficient frontier concept.
