C214 WGU || All Questions Answered Correctly.
Discretionary Financing Needed Formula correct answers Discretionary Financing Needed
(DFN) = Projected Total Asset - Projected Total Liabilities - Projected Equity
Sustainable Growth Rate Formula correct answers Sustainable Growth Rate (SGR) = Return on
Equity (ROE) X (1-Divided Payout Ratio)
Cash Flow from Operating Activities (CFO) Formula correct answers Cash Flow from Operating
Activities (CFO) = Net Income + Depreciation +/- Decreases/Increases in Current Assets +/-
Increase/Decrease in Current Liabilities
Cash Flow form Investing Activities (CFI) = Change in PPE + Depreciation correct answers
Cash Flow from Investing Activities (CFI) Formula
Cash Flow from Financing Activities (CFF) Formula correct answers Cash Flow from Financing
Activities (CFF) = Change in Equity + Change in Long Term Debt - Dividends paid
Gordon Growth Model Formula correct answers Gordon Growth Model = (Expected Dividend at
end of year)/(Required Rate of Return - Dividend Growth Rate)
Degree of Operating Leverage (DoL) Formula correct answers Degree of Operating Leverage
(DoL) = (Sales Revenue - Variable Cost)/ Net Income
Annual Percentage Yield (APY) Formula correct answers Annual Percentage Yield (APY) = (1
+ r/n)(n) - 1
r = stated annual interest rate
N = number of compounding periods.
Income Statement correct answers Revenues = Amount generated by sale of products and
services
Expenses = Amount incurred to manufacture products
Income = The difference between revenues and expenses
Balance Sheet correct answers Assets = Items that are owned by the company
Liabilities = Amounts owed by the company to others
Equity = Invested in the company by shareholders
Income Statement (more details) correct answers - 1st financial statement every company must
prepare
-use accrual principal for both the revenue and expense
-revenue must be recorded the moment it is delivered to customer (despite receiving payment)
-Expense recorded the moment its incurred
,What is included in the income statement and not in the statement of cash flows? correct answers
Depreciation expense - Necessary to manufacture the product but the company will never pay
cash for it.
-the value goes down
-excluded from statement of cash flows because cash will never be paid for it.
-included in income statement
Statement of Retained Earnings correct answers It shows how much of the income the company
earns every year is distributed in the form of dividends and how much is retained to grow the
business.
A firm reported sales revenue of $100,000 margin (profit margin) of 25% and dividend payment
ratio of 10%. The beginning retained earnings was $20,000. What is the ending retained
earnings? correct answers Ending retained earnings = beginning retained earnings + income
earned during the year - dividend payment = retained earnings
$20,000 + (.25 X 100,000) - (.10 X (.25 X 100,000) = $42,500
Another equivalent of this is Equity = Assets - Liabilities
Statement of Cash Flows correct answers - Shows the change in cash balance for a period of
time.
Statement of Cash Flows Components correct answers 1. CFO = Cash Flow from Operating
Activities
2. CFI = Cash Flow from Investing Activities
3. CFF = Cash Flow from Financing Activities
CFO (cash generated and used) Formula reminders correct answers -current assets aka operating
assets and is usually linked to accounts receivable (AR)
-an increase in accounts receivable will cause a minus
- current liabilities aka operating liabilities and is usually linked to accounts payable (AP)
-an increase in accounts payable will cause a plus (and vice versa)
What are the issues with understanding foreign financial statements? correct answers Foreign
financial statements use international financial reporting standards and they are different from
US accounting standards.
, What does cash flow from investing activities measure? correct answers It measures investments
in long term assets such building, equipment, and machinery.
What does the efficient frontier measure? correct answers It maximizes expected return for a
given level of risk.
What is the objective of portfolio diversification? correct answers The objective is to reduce risk.
What is the definition of a current asset and current liability? correct answers A current assets is
cash or any other asset that can be converted to cash within 12 months and a current liability is
any liability that has to be paid within 12 months.
What is differential cash flow? correct answers It is the amount of net cash flow generated a new
asset in a yearly basis.
What does the current ratio measure? correct answers It is a measure of short term liquidity to
pay short term obligations.
How does credit rating impact the cost of capital? correct answers A rating downgrade will
increase the cost of capital.
What is one of the roles of SEC? correct answers It regulates public disclosures of entities that
sell debt and equity to the public.
What leads to an increase in APY? correct answers An increase in the frequency of
compounding - like going from annual to monthly compounding.
What bonds are taxed at the federal level? correct answers Treasury bonds
What bonds are not taxed at a federal level? correct answers Municipal Bonds
What are the two benefits of unbunding and offshoring? (it relates to global finance) same as
outsourcing. correct answers - It reduces costs and results in higher sales and employment.
- It allows for sale of intermediate and final goods at lower prices and increases employment.
What are the two basic types of financial instruments? correct answers Stocks and bonds
What are primary and secondary markets? correct answers Primary markets are where companies
directly sell securities to investors (they have an IPO) and secondary markets are where bought
and sold from third parties like the New York Stock Exchange.
What is one of the roles of SEC? correct answers It regulates companies that sell debt and equity
to the public.
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