WGU - C214 Financial Management - Final,100% CORRECT SOLUTIONS
Statement of Cash Flows
Shows the change in cash balance for a period of time. Focuses only on items where cash is received, or cash is paid.
Cash Flow from Operating Activities (CFO)
Cash flow that a company generates as a result o...
Shows the change in cash balance for a period of time. Focuses only on items where cash is received, or
cash is paid.
Cash Flow from Operating Activities (CFO)
Cash flow that a company generates as a result of day-to-day business operations. Deals with Current
Assets and Current Liabilities.
Cash Flow from Investing Activities (CFI)
Cash flow that is generated from investments in long term assets.
Cash Flow from Financing Activities (CFF)
Cash flow that is used to fund the company. Cash flow that is generated from financing the business.
Includes Debt & Equity.
How does an increase in Accounts receivable impact CFO?
An Increase in Accounts receivable will decrease CFO
How does an increase in Accounts payable impact CFO?
An Increase in Accounts Payable will increase CFO
What financial statement is prepared at a point in time
Balance Sheet
What financial statements are prepared for a period of time?
· Income Statement
· Retained Earnings Statement
· Statement of Cash Flows
Define Efficient Frontier
Maximizes expected return for a given level of risk
Where would a risk averse investor fall on the efficient frontier?
100% Bonds
Where would a risk-taking investor fall on the efficient frontier?
100% Stocks
What is a Beta?
A Measure of Risk - A Beta 1 is the average risk of all stocks. Anytime a beta is below 1, it is less risk. If it
is more than 1, it is high risk.
, Define efficient market hypothesis as it relates to a firm?
For any company to survive, they need to make profitable decisions. Otherwise, investors will shun their
business. The firm needs to invest where the return is more than the cost.
What is the intrinsic value of a stock under efficient market hypothesis?
The intrinsic value of stock is the present value of the stock's after tax net cash flows.
Whenever the question states that dividend was paid recently or was just paid, what must be
calculated first?
Expected Dividend
For every Bond question, what must be entered?
FV must be entered as 1000
PMT must be entered as 1000 x Coupon Rate
What is Capital Budgeting?
Refers to long term investment decision making.
Refers to the process used in making investment decisions involving projects that generate cash flows
over a multi-year horizon.
What information is needed for capital budgeting?
Initial Outlay
(How much money the company is going to invest in the company right now)
Differential Annual Cash Flows
(Cash flow that the project will generate year after year)
Terminal Cash Flow
(Cash flow generated at the end of the project)
Define NPV?
Net Present Value method is the method that is universally used by companies to evaluate long term
investment decisions.
NPV is defined as the present value of after-tax net tax flows and is most common used method in
capital budgeting.
The Net Present value should be positive in order for a company to proceed with an investment. If it is
negative, the company should not proceed.
Define IRR?
Another method used for long term investment decisions is the internal rate of return (IRR) method.
This method is considered inferior to NPV. Internal Rate of Return (IRR) is defined as the discount rate
that results in a Zero Net Present Value.
Define Free Cash Flow
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