WGU C214 Financial Management Final Exam Q&A

Which will be larger: actual taxes payable or accounting income tax expense Accounting tax expense will be higher; actual taxes based on IRS rules will be lower Which cash flow measures the change in long term assets? Cash flow investing Which financial ratios measure "efficiency"? Asset turnover and Fixed Asset turnover Which ratio is the best measure of a firm's ability to pay bills? Quick ratio Which decision requires using subjective estimates? Useful (depreciable) life of a new asset What is the yield to maturity of a bond? The return earned from purchase date to maturity If a bond pays $50 interest per year and yields 4%, what is its price? Premium price; i.e. $50 interest = 5% coupon; if CouponYield, premium price If a firm buys a 90-day Treasury bill, where is it carried on the balance sheet? Current asset How does a "prudent investor" select investments? Seeks the highest return for "reasonable" amount of risk What is added to net income to derive net cash flow? Depreciation expense What is the difference between WACC and CAPM's required return? CAPM includes only equity required return; WACC includes debt & equity What do points on the Efficient Frontier measure? The maximum return for a given level of risk; maximum Return-to-risk ratio What is Beta? Measure of volatility of a stock's risk relative to the market Why are accurate forecasts important? Plan for resources to support sales Which leverage measure shows the impact of EBIT changes on pre-tax profit Financial leverage