Business Case Writing Financial Analysis in Business Cases 3

Question 1

Which ratio compares a project's net benefits to its costs, with a value greater than 1 indicating a worthwhile investment?

Accepted Answer

Benefit-Cost Ratio (BCR)

Answer

A Benefit-Cost Ratio (BCR) above 1.0 means benefits exceed costs, signaling that the investment creates value.

Question 2

In business case writing, 'opportunity cost' refers to:

Accepted Answer

The value of the next best alternative foregone

Answer

Opportunity cost is the benefit given up by choosing one option over the next best alternative, and should be included in business case analysis.

Question 3

Monte Carlo simulation is used in advanced business case analysis to:

Accepted Answer

Model probability distributions of financial outcomes

Answer

Monte Carlo simulation runs thousands of scenarios using probability distributions for key variables to model the range of possible financial outcomes.

Question 4

Which term describes the minimum rate of return a business case must achieve to be approved?

Accepted Answer

Hurdle rate

Answer

The hurdle rate is the minimum acceptable rate of return set by the organization, often based on WACC plus a risk premium.

Question 5

Depreciation is typically included in a business case because it:

Accepted Answer

Provides tax shield benefits that reduce effective costs

Answer

Depreciation itself is non-cash but generates a tax shield — the deduction reduces taxable income and thus actual tax payments.

Business Case Writing Practice Test

Business Case Writing Practice Test

Business Case Writing Financial Analysis in Business Cases 3