Western Governors University
YDUTS • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214
F I N A N C I A L M A N A G E M E N T · CO N C E PTS , C A LCU L AT I O N S & R E G U L AT I O N S
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Comprehensive Study Guide TOTAL QUESTIONS 50 Questions
SUBJECT AREAS TVM · Bonds · WACC · Capital Budgeting · FORMAT Multiple Choice — Select the Single Best
Ratios · Ethics Answer
STUDY GUIDE EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, time value of money, bond/stock valuation, WACC, capital budgeting, ratios, working
capital, and regulations.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — FINANCIAL MANAGEMENT COMPREHENSIVE STUDY Questions 1 – 50
1. Corporate finance focuses on:
A. Various types of financial instruments like stocks and bonds
B. Financial decision making by a firm's management
C. Making money by paying depositors lower interest rates than charged to borrowers
D. Regulation of financial markets
CORRECT ANSWER B — Financial decision making by a firm's management
RATIONALE Corporate finance focuses on financial DECISION-MAKING by a firm's management — including capital
budgeting (which projects to accept), capital structure (debt vs. equity mix), and working capital management
(day-to-day cash management). INVESTMENTS (A) deals with various types of financial instruments.
BANKING/FINANCIAL INSTITUTIONS (C) make money through interest rate spreads. The GOAL of a corporation
is to MAXIMIZE SHAREHOLDER VALUE (stock price), not simply maximize profits. Finance is FORWARD-
LOOKING and involves uncertainty; accounting is backward-looking.
, 2. An auction market has a physical location and prices are determined by the highest price an investor is willing to
pay. Which is an example?
A. NASDAQ
B. New York Stock Exchange (NYSE)
C. Over-the-counter market
D. Electronic communication network
CORRECT ANSWER B — New York Stock Exchange (NYSE)
RATIONALE An AUCTION market has a PHYSICAL LOCATION (Wall Street) where buyers and sellers come together, and
prices are determined by the highest price an investor is willing to pay and the lowest price a seller is willing
to accept. The NYSE is the world's largest auction market. A DEALER market (NASDAQ — A) has NO physical
location — securities are bought and sold through a network of dealers who trade for themselves. Trading on
the NYSE uses Designated Market Makers (specialists) who provide LIQUIDITY for a fair and orderly market.
Secondary markets are where securities are traded AFTER the initial offering.
3. The goal of a company/firm is to:
A. Maximize profits at all costs
B. Maximize shareholder value or maximize stock price
C. Minimize operating expenses
D. Provide the best product possible regardless of cost
CORRECT ANSWER B — Maximize shareholder value or maximize stock price
RATIONALE The primary goal of a corporation is to MAXIMIZE SHAREHOLDER VALUE (stock price), which considers both
risk and return over the long term. Maximizing profits alone (A) is problematic — it ignores risk, timing of cash
flows, and can lead to short-term thinking. A firm should AVOID investments with negative NPV because they
destroy shareholder value. Agency costs are incurred when management does NOT act in the best interests of
shareholders. Shareholder equity is necessary for a firm's viability. To maximize its stock price long-term, a
firm must BALANCE RISK AND RETURN.
4. Which financial statement is a "snapshot" of a firm's assets and financing at a particular point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
CORRECT ANSWER C — Balance Sheet
RATIONALE The BALANCE SHEET is a "snapshot" showing Assets = Liabilities + Owner's Equity at a POINT in time. The
Income Statement shows results of operations OVER TIME (Revenues − Expenses = Net Income). The
Statement of Cash Flows tracks all cash in and out (CFO + CFI + CFF = Change in Cash). Net Income links the
balance sheet and income statement: Net Income = Dividends + Change in Retained Earnings. Accumulated
Depreciation is the total of all depreciation claimed against fixed assets. Net PP&E = Gross PP&E −
Accumulated Depreciation.
YDUTS • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214
F I N A N C I A L M A N A G E M E N T · CO N C E PTS , C A LCU L AT I O N S & R E G U L AT I O N S
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Comprehensive Study Guide TOTAL QUESTIONS 50 Questions
SUBJECT AREAS TVM · Bonds · WACC · Capital Budgeting · FORMAT Multiple Choice — Select the Single Best
Ratios · Ethics Answer
STUDY GUIDE EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Content covers: financial statements, time value of money, bond/stock valuation, WACC, capital budgeting, ratios, working
capital, and regulations.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — FINANCIAL MANAGEMENT COMPREHENSIVE STUDY Questions 1 – 50
1. Corporate finance focuses on:
A. Various types of financial instruments like stocks and bonds
B. Financial decision making by a firm's management
C. Making money by paying depositors lower interest rates than charged to borrowers
D. Regulation of financial markets
CORRECT ANSWER B — Financial decision making by a firm's management
RATIONALE Corporate finance focuses on financial DECISION-MAKING by a firm's management — including capital
budgeting (which projects to accept), capital structure (debt vs. equity mix), and working capital management
(day-to-day cash management). INVESTMENTS (A) deals with various types of financial instruments.
BANKING/FINANCIAL INSTITUTIONS (C) make money through interest rate spreads. The GOAL of a corporation
is to MAXIMIZE SHAREHOLDER VALUE (stock price), not simply maximize profits. Finance is FORWARD-
LOOKING and involves uncertainty; accounting is backward-looking.
, 2. An auction market has a physical location and prices are determined by the highest price an investor is willing to
pay. Which is an example?
A. NASDAQ
B. New York Stock Exchange (NYSE)
C. Over-the-counter market
D. Electronic communication network
CORRECT ANSWER B — New York Stock Exchange (NYSE)
RATIONALE An AUCTION market has a PHYSICAL LOCATION (Wall Street) where buyers and sellers come together, and
prices are determined by the highest price an investor is willing to pay and the lowest price a seller is willing
to accept. The NYSE is the world's largest auction market. A DEALER market (NASDAQ — A) has NO physical
location — securities are bought and sold through a network of dealers who trade for themselves. Trading on
the NYSE uses Designated Market Makers (specialists) who provide LIQUIDITY for a fair and orderly market.
Secondary markets are where securities are traded AFTER the initial offering.
3. The goal of a company/firm is to:
A. Maximize profits at all costs
B. Maximize shareholder value or maximize stock price
C. Minimize operating expenses
D. Provide the best product possible regardless of cost
CORRECT ANSWER B — Maximize shareholder value or maximize stock price
RATIONALE The primary goal of a corporation is to MAXIMIZE SHAREHOLDER VALUE (stock price), which considers both
risk and return over the long term. Maximizing profits alone (A) is problematic — it ignores risk, timing of cash
flows, and can lead to short-term thinking. A firm should AVOID investments with negative NPV because they
destroy shareholder value. Agency costs are incurred when management does NOT act in the best interests of
shareholders. Shareholder equity is necessary for a firm's viability. To maximize its stock price long-term, a
firm must BALANCE RISK AND RETURN.
4. Which financial statement is a "snapshot" of a firm's assets and financing at a particular point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
CORRECT ANSWER C — Balance Sheet
RATIONALE The BALANCE SHEET is a "snapshot" showing Assets = Liabilities + Owner's Equity at a POINT in time. The
Income Statement shows results of operations OVER TIME (Revenues − Expenses = Net Income). The
Statement of Cash Flows tracks all cash in and out (CFO + CFI + CFF = Change in Cash). Net Income links the
balance sheet and income statement: Net Income = Dividends + Change in Retained Earnings. Accumulated
Depreciation is the total of all depreciation claimed against fixed assets. Net PP&E = Gross PP&E −
Accumulated Depreciation.
