WGU C214 Concepts Only Multi Choice Version (GRADED A)

The SEC Securities & Exchange Commission requires public companies to do the following: a. File audited financial statements with SEC b. Change CEOs on a regular basis e. Regulates the Money Supply d. Prohibits foreign bribery a What does the Sarbanes-Oxley Act require companies to do? a. Have a board of directors b. Register all foreign sales c. Make estimated tax payments d. Have internal control audits d If a company produces and sells a product only in the U.S., what international developments may affect its sales? a. Fluctuating exchange rates b. Imports of competing products c. Immigration policy d. Inflation in Europe b The SEC requires the following to file audited financial statements: a. All companies b. All for-profit companies c. All publicly-traded corporations d. There is no such requirement c Which best describes conceptually the valuation of all financial assets in financial markets? a. Based on opinions of Wall Street analysts b. The NPV of anticipated cash flows c. Based on the book value of assets and liabilities d. None of the above b Which accurately describes an "efficient" market? a. Prices are low b. Prices do not fluctuate c. Deviations from "fair value" are quickly eliminated d. "Hot stocks" are the best investment c If a firm's goal is to maximize stockholder wealth, which would the firm avoid? a. Stock buybacks b. Risky long-term investments c. Investments with negative NPV d. Transparency in financial statements c If you wanted to evaluate a non-public company, what sources would you use? a. The financial statements filed with the SEC b. The latest stock price quoted in the Wall Street Journal c. The PE of a comparable public company d. The book value of equity in its balance sheet c Which section of the Statement of Cash Flows describes the production and sales of the firm's product? a. Cash Flow Operations b. Cash Flow Investing c. Cash Flow Financing. d. Cash Flow Securities a For calculating cash flows, why is depreciation added to Net Income? a. To offset taxes b. Depreciation is a non-cash deduction c. To determine pre-tax income d. None of the above b The fundamental concept underlying the valuation of all financial assets is: a. The application of the PE ratio b. Use of the Gordon Model c. The present value of anticipated cash flows. d. The future value of cash flows c What explains the size of the yield spread of junk bonds over Treasury? a. It is the value of the expected default loss b. It depends the firm'a profit c. It is the probability of default d. It is a "psychological' reaction of investors. a What does Beta measure? a. The default risk of a stock b. The relative riskiness of an individual stock c. Indicates the market value of the stock d. Stocks to avoid purchasing b What is the most effective use of financial statements in valuing a stock? a. Use the book value of equity on the balance sheet b. Use GAAP earnnings c. Use data to estimate future earnings d. Read the footnotes c If market interest rates rise, what impact does it have on a given bond? a. Its price decreases b. It will have a discount price c. No impact since the coupon rate is fixed d. Its price increases a What impact did the recent corporate tax cut have on a firm's WACC? a. It decreased WACC b. It increased WACC c. No impact since WACC depend on firm risk d. None of the above b Why do firms often use "sensitivity" tests in analyzing investment projects a. Required by the SEC b. Uncertainty of forecast assumptions c. Auditors require it. d. Required section of financial statements b If debt is less costly than equity, why don't firms maximize debt use? a. Excessive debt inceases risk of banruptcy b. Restricted by Federal tax regulations c. It reduces the benfits of financial leverage d. It increases operating leverage a Why does a firm's investment opportunities affect it dividend payout ratio? a. Maximization of shareholder wealth strategy b. Limited access to market financing c. Attempts to increase stock price d. All of the above d If two annuities have the same payments and term, why is an Annuity Due more valuable than an Ordinary Annuity? a. The have equal value b. Annuity Due payments occur earlier c. Annuity Due uses a lower discount rate d. Ordinary annuities are consider more risky b What is the impact of rising interest rates on foreign exchange? a. Makes USD decline in value b. Has no impact on USD c. Increases the value of USD d. Increases the value of EUR c In cash flow statements, which section reflects so-called "spontaneous" accounts which vary with sales? a. Cash flow operations b. Cash flow investing c. Cash flow financing d. Cash flow Sales a What are the practical disadvantages of the Gordon model for equity valuation? a. How to use if no dividends are paid b. Must project dividends "forever" into the future. c. Does not address the appropriate discount rate d. All of the above d What factor determines the "market risk premium" on stocks? a. The level of Treasury yields b. The investor-perceived riskiness of stocks c. Seasonality d. Projected future earnings b Why would a company buy back outstanding stock? a. To boost the price of the stock b. To increase financial leverage c. Lack of investment opportunities d. All of the above d Which factor does NOT affect a firm's WACC? a. The market risk premium b. The tax rate c. Treasury yields d. The exchange rate d Why should an investor diversify the portfolio? a. To achieve a better combination of risk and return b. To avoid putting "all eggs in one basket" c. Stock returns are a function of systematic risk d. All of the above d Which statement about a PE ratio is false? a. High PE ratios reflect higher expected growth rates b. Low PE stocks are cheap c. PE is the ratio of price to earnings d. High Beta stocks have lower PE ratios b If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use? a. Slow sales growth b. Lower dividend payout c. Increase the net margin d. All of the above. d Dodd-Frank regulates which segment of the U.S. Economy? a. Fannie Mae and Freddie Mac (Housing financing) b. Banking Industry c. Multi-level Marketing Industry d. Automobile Industry b Which is not true of both stocks and bonds a. Market value derived from expected cash flows b. Market value varies over time c. Have voting rights d. Trade in both primary and secondary markets c The value of a corporation is best measured by a. Equity on the Balance Sheet b. Assets minus Liabilities on the Balance Sheet c. Market capitalization d. Its book value c Which is not a component of the DuPont formula? a. Net Income to Sales b. Debt to Equity Ratio c. Sales to Asset Ratio d. Assets to Equity Ratio b What metric converts FV to PV? a. The discount rate b. Time c. The PE ratio d. None of the above a The interest rate on a corporate bond does not reflect a. Risk b. Inflation c. Face Value d. U.S. Treasury rates c PV ordinarily is less than FV. What would cause the opposite? a. Compounding b. Negative interest rates c. The exchange rate d. The Federal Reserve b Which would likely have the lowest price? a. 3-month commercial paper b. Zero coupon bond c. 5-year Treasury note d. AAA corporate note b Junk bonds are those whose rating is below a. AAA b. AA c. A d. BBB d Diversification protects against a. Systematic risk b. Market risk c. Idiosyncratic risk d. Inflation risk c Which is the best diversification for stock investment? a. Auto company and grocery chain b. Walmart and Costco c. Home buider and auto company d. Boeing and Lockheed a If you are assessing a firm's ability to meet short term obligations, you would use which ratio? a. Debt ratio b. Quick ratio c. Gross margin d. Financial leverage b To assess firm efficiency, which ratio would you use? a. Asset turnover b. Operating margin c. Debt ratio d. None of the above a Which would have the highest value? a. Gross margin b. Operating margin c. Net margin d. All are equal a Which is the most important profit ratio? a. Gross Margin b. Net Margin c. Return on Equity d. Return on Assets c If the debt ratio increases, what effect does that have on ROE? a. ROE increases b. ROE decreases c. ROE is unchanged d. Cannot be determined a What is one way a firm maximizes shareholder value? A. By switching inventory methods B. By reducing the firm's labor force C. By outsourcing the production of the firm's core product D. By avoiding investments that cost more money than they bring in d What is one of the two basic types of financial instruments? A. Money Markets B. Mutual Funds C. Stocks D. Options c Why is it a challenge for a fund manager to review financial statements from other countries? A. Because the U.S. Financial Accounting Standards Board is in the beginning stages of working with the International Accounting Standards Board on converging reporting standards. B. Because the U.S. Generally Accepted Accounting Principles and the International Financial Reporting Standards vary. C. Because the U.S. Financial Accounting Standards and the International Accounting Standards Board abandoned the project to converge financial reporting rules. D. Because the U.S. Financial Accounting Standards Board does not work with the International Accounting Standards Board on mitigating differences in reporting standards. b What is true about the content and structure of an income statement? A. It reports the expenses and liabilities at a point in time. B. It reports the revenues and expenses for a period of time. C. It reports the assets and expenses for a period of time. D. It reports the assets, liabilities, and equity at a point in time. b What is true when income for tax purposes is higher than accounting income A. Accounting income tax expenses is the same as actual income tax payable. B. Actual income taxes payable will be lower than accounting income tax expense. C. Actual income taxes payable will be the same as accounting income tax expense. D. Actual income taxes payable will be higher than accounting income tax expense. d What does the statement of cash flows report? A. A firm's cash balance at a point in time B. A firm's cash net income for a point in time C. A firm's cash balance and changes for a period of time D. A firm's cash net income for a period of time c What does net income measure that the cash flow from operating activities does not? A. Credit sales to customers B. Payments made to suppliers of goods and services C. Depreciation expenses D. Payments to employees or other expenses b Which measure of cash flow is commonly used to evaluate the change in revenue and costs? A. Cash flow from operating a