Business Case Writing Financial Analysis in Business Cases 2 — Questions and Answers
Question 1: In business case financial modeling, which term describes benefits that are difficult to quantify in dollar terms?
- Tangible benefits
- Intangible benefits (Correct answer)
- Fixed benefits
- Direct benefits
Correct answer: Intangible benefits
Intangible benefits, such as improved employee morale or brand reputation, are real but hard to assign a precise monetary value.
Question 2: Break-even analysis in a business case determines the point at which:
- Revenue equals total costs (Correct answer)
- Profit is maximized
- Cash flow is highest
- Market share peaks
Correct answer: Revenue equals total costs
The break-even point is where total revenues equal total costs, resulting in neither profit nor loss.
Question 3: What does a positive cash flow in Year 1 of a business case typically indicate?
- The project has already paid back its investment
- The project generates more cash than it spends in that year (Correct answer)
- NPV is positive
- The project requires no further funding
Correct answer: The project generates more cash than it spends in that year
A positive cash flow in any given year means the project's inflows exceeded its outflows for that period.
Question 4: Which financial statement is most critical for assessing a project's liquidity impact in a business case?
- Income statement
- Cash flow statement (Correct answer)
- Balance sheet
- Statement of retained earnings
Correct answer: Cash flow statement
The cash flow statement shows actual cash movements, making it essential for evaluating whether a project can meet its financial obligations.
Question 5: In a business case, 'total cost of ownership' (TCO) includes:
- Only the purchase price
- Acquisition, operating, and disposal costs over the asset's life (Correct answer)
- Only recurring maintenance fees
- Only direct labor costs
Correct answer: Acquisition, operating, and disposal costs over the asset's life
TCO captures all costs associated with an asset from acquisition through disposal, providing a complete financial picture.
Question 6: A business case financial model should use 'real' (inflation-adjusted) cash flows when the discount rate is:
- A nominal rate
- A real (inflation-excluded) rate (Correct answer)
- The federal funds rate
- A risk-free rate
Correct answer: A real (inflation-excluded) rate
For consistency, real cash flows must be paired with a real discount rate; mixing nominal and real values produces incorrect NPV results.
Business Case Writing Financial Analysis in Business Cases 2
In business case financial modeling, which term describes benefits that are difficult to quantify in dollar terms?