✦ WGU ✦
Western Governors University
PMAC TO OB
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214 Boot Camp Flashcards
F I N A N C I A L STAT E M E N TS · C A P I TA L B U D G E T I N G · B O N D VA LU AT I O N · W O R K I N G C A P I TA L · E T H I CS
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Boot Camp Flashcards TOTAL QUESTIONS 40 Questions
SUBJECT AREAS Statements · Bonds · Capital Budgeting · WACC · Ethics · Intl Finance FORMAT Multiple Choice & True/False — Select the Single Best Answer
BO OT CAMP EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, bond valuation, capital budgeting (NPV/IRR), cost of capital, working capital management, regulations, and global finance.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — BOOT CAMP COMPREHENSIVE REVIEW Questions 1 – 40
1. What are the four statements required by the Securities Exchange Commission (SEC)?
A. Income Statement, Trial Balance, Balance Sheet, Statement of Owners' Equity
B. Income Statement, Retained Earnings, Balance Sheet, Statement of Cash Flow
C. Income Statement, General Ledger, Balance Sheet, Statement of Cash Flow
D. Profit & Loss, Retained Earnings, Balance Sheet, Cash Budget
CORRECT ANSWER B — Income Statement, Retained Earnings, Balance Sheet, and Statement of Cash Flow
RATIONALE The SEC requires public companies to file FOUR financial statements: (1) INCOME STATEMENT — reports revenues and expenses over a period of time; (2)
STATEMENT OF RETAINED EARNINGS — shows changes in retained earnings (Net Income − Dividends); (3) BALANCE SHEET — reports assets, liabilities, and equity
at a point in time; (4) STATEMENT OF CASH FLOWS — explains changes in cash balance over a period (Operating, Investing, Financing activities). The Trial Balance
and General Ledger are internal accounting records, not SEC-required statements. The SEC requires annual AUDITED financial statements.
2. What is the revenue recognition principle?
A. Revenue is recognized when cash is received from the customer.
B. Revenue is recognized when products or services are delivered to the customer.
C. Revenue is recognized when the invoice is mailed.
D. Revenue is recognized at the end of the fiscal year.
CORRECT ANSWER B — Revenue is recognized when products or services are delivered to the customer
RATIONALE The revenue recognition principle (part of accrual accounting) states that revenue should be recorded when the EARNINGS PROCESS IS COMPLETE — that is, when
the goods or services have been delivered to the customer, not necessarily when cash is received. This is paired with the matching principle: expenses are
recognized when they are INCURRED (not when paid). Together, these principles ensure the income statement reflects economic reality rather than just cash
movements. For example, a company that delivers a product in December but receives payment in January recognizes the revenue in December.
3. Which financial statement is prepared at a POINT in time, while the others are prepared for a PERIOD of time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flow
CORRECT ANSWER C — Balance Sheet
RATIONALE The Balance Sheet is a "snapshot" — it reports assets, liabilities, and equity AT A POINT IN TIME (e.g., "as of December 31, 2023"). It is called a "permanent
statement" because balances carry forward from period to period. In contrast, the Income Statement, Statement of Retained Earnings, and Statement of Cash
Flows all cover a PERIOD of time (e.g., "for the year ended December 31, 2023") and are reset at the beginning of each fiscal year. The balance sheet reflects
cumulative activity since the company's inception.
4. What is the Cash Flow from Operating Activities (CFO)?
A. Cash generated from long-term investing activities such as buying equipment
B. Cash generated from issuing stock or bonds
C. Cash generated from the day-to-day operations of the business
D. Cash generated from the sale of fixed assets
CORRECT ANSWER C — Cash generated from the day-to-day operations of the business
RATIONALE Cash Flow from Operating Activities (CFO) reflects cash generated from the company's CORE BUSINESS — producing and selling products or services. It starts with
Net Income and adjusts for non-cash items (depreciation) and changes in working capital accounts. CFO is commonly used to evaluate changes in revenue and
costs. Cash Flow from Investing Activities (A, D) relates to long-term assets. Cash Flow from Financing Activities (B) relates to debt and equity transactions.
Depreciation expense appears on the Income Statement but NOT in the Statement of Cash Flows (it is added back as a non-cash item).
, 5. If Beta is greater than 1, what type of risk does the stock have?
A. Low Risk
B. High Risk
C. No Risk
D. Risk-free
CORRECT ANSWER B — High Risk
RATIONALE Beta (β) measures systematic (market) risk — the relative volatility of a stock compared to the overall market. The market has a beta of 1.0. If β > 1, the stock is
MORE volatile than the market (HIGH RISK) — it amplifies market movements. If β < 1, the stock is LESS volatile (LOW RISK). If β = 1, the stock moves with the
market. Beta is a statistically-derived measure used in the CAPM model to determine expected return. The objective of portfolio diversification is to REDUCE RISK
by holding assets that are not perfectly correlated.
6. Capital Budgeting focuses on:
A. Day-to-day cash management
B. Decision making for a company's long-term investment decisions
C. Preparing the annual budget for operating expenses
D. Managing accounts receivable and payable
CORRECT ANSWER B — Decision making for a company's long-term investment decisions
RATIONALE Capital Budgeting is the process of evaluating and selecting LONG-TERM INVESTMENTS — projects that generate cash flows over multiple years (e.g., buying new
machinery, building a factory, launching a new product line). It is NOT the same as the Statement of Cash Flows or operational budgeting. The two primary
methods: NPV (Net Present Value) and IRR (Internal Rate of Return). Cash flows consist of: Initial Outlay (cost of asset, shipping, working capital), Differential
Annual Cash Flows (incremental yearly cash), and Terminal Cash Flow (after-tax salvage value, release of working capital). The purpose is deciding which projects
increase the firm's value.
7. The Initial Outlay for a capital budgeting project consists of:
A. Operating expenses for the first year only
B. Cost of the Asset, Shipping Costs, and Investment in Working Capital
C. Annual depreciation and tax expenses
D. Interest payments on debt used to finance the project
CORRECT ANSWER B — Cost of the Asset, Shipping Costs, and Investment in Working Capital
RATIONALE The Initial Outlay (or initial investment) includes all costs required to get the project started: (1) PURCHASE PRICE of the asset, (2) SHIPPING and installation costs,
and (3) INVESTMENT IN WORKING CAPITAL — funds needed to operate before differential cash flows begin (e.g., initial inventory, receivables). Sunk costs (already
spent, cannot be recovered) and expenses for studies/reports are NOT included in the investment calculation. Interest payments (D) are financing costs, not part of
the initial outlay — they are captured in the discount rate (WACC).
8. What is the relationship between NPV and the discount rate?
A. NPV is independent of the discount rate
B. If the discount rate equals the IRR, NPV equals zero
C. NPV always increases as the discount rate increases
D. NPV and IRR are always equal
CORRECT ANSWER B — If the discount rate equals the IRR, NPV equals zero
RATIONALE The IRR (Internal Rate of Return) is DEFINED as the discount rate that makes NPV = 0. Therefore, when the discount rate equals the IRR, NPV = 0. A project should be
ACCEPTED if IRR > WACC (NPV is positive). A project should be REJECTED if IRR < WACC (NPV is negative). NPV is preferred over IRR because: (1) NPV measures
dollar value added to the firm, and (2) NPV is more reliable — IRR can produce multiple solutions for non-conventional cash flows and assumes reinvestment at
the IRR rate. The fundamental valuation concept: value = present value of anticipated cash flows.
9. What financial ratio is used in the "comparable method" of firm valuation?
A. Current Ratio
B. Debt to Equity Ratio
C. P/E Ratio (Price/Earnings Ratio)
D. Quick Ratio
CORRECT ANSWER C — P/E Ratio (Price/Earnings Ratio)
RATIONALE The comparable multiples method values a company by applying the P/E ratio (or other multiples like EV/EBITDA) from similar publicly traded companies.
Formula: Estimated Value = Net Income × Comparable P/E Ratio. A high P/E reflects higher expected growth rates. To evaluate a non-public company, you would
use the P/E of a comparable public company. The value of a corporation is best measured by MARKET CAPITALIZATION (market price × shares outstanding), not
book value. The intrinsic value of a stock = NPV of expected future cash flows.
Western Governors University
PMAC TO OB
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214 Boot Camp Flashcards
F I N A N C I A L STAT E M E N TS · C A P I TA L B U D G E T I N G · B O N D VA LU AT I O N · W O R K I N G C A P I TA L · E T H I CS
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Boot Camp Flashcards TOTAL QUESTIONS 40 Questions
SUBJECT AREAS Statements · Bonds · Capital Budgeting · WACC · Ethics · Intl Finance FORMAT Multiple Choice & True/False — Select the Single Best Answer
BO OT CAMP EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, bond valuation, capital budgeting (NPV/IRR), cost of capital, working capital management, regulations, and global finance.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — BOOT CAMP COMPREHENSIVE REVIEW Questions 1 – 40
1. What are the four statements required by the Securities Exchange Commission (SEC)?
A. Income Statement, Trial Balance, Balance Sheet, Statement of Owners' Equity
B. Income Statement, Retained Earnings, Balance Sheet, Statement of Cash Flow
C. Income Statement, General Ledger, Balance Sheet, Statement of Cash Flow
D. Profit & Loss, Retained Earnings, Balance Sheet, Cash Budget
CORRECT ANSWER B — Income Statement, Retained Earnings, Balance Sheet, and Statement of Cash Flow
RATIONALE The SEC requires public companies to file FOUR financial statements: (1) INCOME STATEMENT — reports revenues and expenses over a period of time; (2)
STATEMENT OF RETAINED EARNINGS — shows changes in retained earnings (Net Income − Dividends); (3) BALANCE SHEET — reports assets, liabilities, and equity
at a point in time; (4) STATEMENT OF CASH FLOWS — explains changes in cash balance over a period (Operating, Investing, Financing activities). The Trial Balance
and General Ledger are internal accounting records, not SEC-required statements. The SEC requires annual AUDITED financial statements.
2. What is the revenue recognition principle?
A. Revenue is recognized when cash is received from the customer.
B. Revenue is recognized when products or services are delivered to the customer.
C. Revenue is recognized when the invoice is mailed.
D. Revenue is recognized at the end of the fiscal year.
CORRECT ANSWER B — Revenue is recognized when products or services are delivered to the customer
RATIONALE The revenue recognition principle (part of accrual accounting) states that revenue should be recorded when the EARNINGS PROCESS IS COMPLETE — that is, when
the goods or services have been delivered to the customer, not necessarily when cash is received. This is paired with the matching principle: expenses are
recognized when they are INCURRED (not when paid). Together, these principles ensure the income statement reflects economic reality rather than just cash
movements. For example, a company that delivers a product in December but receives payment in January recognizes the revenue in December.
3. Which financial statement is prepared at a POINT in time, while the others are prepared for a PERIOD of time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flow
CORRECT ANSWER C — Balance Sheet
RATIONALE The Balance Sheet is a "snapshot" — it reports assets, liabilities, and equity AT A POINT IN TIME (e.g., "as of December 31, 2023"). It is called a "permanent
statement" because balances carry forward from period to period. In contrast, the Income Statement, Statement of Retained Earnings, and Statement of Cash
Flows all cover a PERIOD of time (e.g., "for the year ended December 31, 2023") and are reset at the beginning of each fiscal year. The balance sheet reflects
cumulative activity since the company's inception.
4. What is the Cash Flow from Operating Activities (CFO)?
A. Cash generated from long-term investing activities such as buying equipment
B. Cash generated from issuing stock or bonds
C. Cash generated from the day-to-day operations of the business
D. Cash generated from the sale of fixed assets
CORRECT ANSWER C — Cash generated from the day-to-day operations of the business
RATIONALE Cash Flow from Operating Activities (CFO) reflects cash generated from the company's CORE BUSINESS — producing and selling products or services. It starts with
Net Income and adjusts for non-cash items (depreciation) and changes in working capital accounts. CFO is commonly used to evaluate changes in revenue and
costs. Cash Flow from Investing Activities (A, D) relates to long-term assets. Cash Flow from Financing Activities (B) relates to debt and equity transactions.
Depreciation expense appears on the Income Statement but NOT in the Statement of Cash Flows (it is added back as a non-cash item).
, 5. If Beta is greater than 1, what type of risk does the stock have?
A. Low Risk
B. High Risk
C. No Risk
D. Risk-free
CORRECT ANSWER B — High Risk
RATIONALE Beta (β) measures systematic (market) risk — the relative volatility of a stock compared to the overall market. The market has a beta of 1.0. If β > 1, the stock is
MORE volatile than the market (HIGH RISK) — it amplifies market movements. If β < 1, the stock is LESS volatile (LOW RISK). If β = 1, the stock moves with the
market. Beta is a statistically-derived measure used in the CAPM model to determine expected return. The objective of portfolio diversification is to REDUCE RISK
by holding assets that are not perfectly correlated.
6. Capital Budgeting focuses on:
A. Day-to-day cash management
B. Decision making for a company's long-term investment decisions
C. Preparing the annual budget for operating expenses
D. Managing accounts receivable and payable
CORRECT ANSWER B — Decision making for a company's long-term investment decisions
RATIONALE Capital Budgeting is the process of evaluating and selecting LONG-TERM INVESTMENTS — projects that generate cash flows over multiple years (e.g., buying new
machinery, building a factory, launching a new product line). It is NOT the same as the Statement of Cash Flows or operational budgeting. The two primary
methods: NPV (Net Present Value) and IRR (Internal Rate of Return). Cash flows consist of: Initial Outlay (cost of asset, shipping, working capital), Differential
Annual Cash Flows (incremental yearly cash), and Terminal Cash Flow (after-tax salvage value, release of working capital). The purpose is deciding which projects
increase the firm's value.
7. The Initial Outlay for a capital budgeting project consists of:
A. Operating expenses for the first year only
B. Cost of the Asset, Shipping Costs, and Investment in Working Capital
C. Annual depreciation and tax expenses
D. Interest payments on debt used to finance the project
CORRECT ANSWER B — Cost of the Asset, Shipping Costs, and Investment in Working Capital
RATIONALE The Initial Outlay (or initial investment) includes all costs required to get the project started: (1) PURCHASE PRICE of the asset, (2) SHIPPING and installation costs,
and (3) INVESTMENT IN WORKING CAPITAL — funds needed to operate before differential cash flows begin (e.g., initial inventory, receivables). Sunk costs (already
spent, cannot be recovered) and expenses for studies/reports are NOT included in the investment calculation. Interest payments (D) are financing costs, not part of
the initial outlay — they are captured in the discount rate (WACC).
8. What is the relationship between NPV and the discount rate?
A. NPV is independent of the discount rate
B. If the discount rate equals the IRR, NPV equals zero
C. NPV always increases as the discount rate increases
D. NPV and IRR are always equal
CORRECT ANSWER B — If the discount rate equals the IRR, NPV equals zero
RATIONALE The IRR (Internal Rate of Return) is DEFINED as the discount rate that makes NPV = 0. Therefore, when the discount rate equals the IRR, NPV = 0. A project should be
ACCEPTED if IRR > WACC (NPV is positive). A project should be REJECTED if IRR < WACC (NPV is negative). NPV is preferred over IRR because: (1) NPV measures
dollar value added to the firm, and (2) NPV is more reliable — IRR can produce multiple solutions for non-conventional cash flows and assumes reinvestment at
the IRR rate. The fundamental valuation concept: value = present value of anticipated cash flows.
9. What financial ratio is used in the "comparable method" of firm valuation?
A. Current Ratio
B. Debt to Equity Ratio
C. P/E Ratio (Price/Earnings Ratio)
D. Quick Ratio
CORRECT ANSWER C — P/E Ratio (Price/Earnings Ratio)
RATIONALE The comparable multiples method values a company by applying the P/E ratio (or other multiples like EV/EBITDA) from similar publicly traded companies.
Formula: Estimated Value = Net Income × Comparable P/E Ratio. A high P/E reflects higher expected growth rates. To evaluate a non-public company, you would
use the P/E of a comparable public company. The value of a corporation is best measured by MARKET CAPITALIZATION (market price × shares outstanding), not
book value. The intrinsic value of a stock = NPV of expected future cash flows.
