Business Case Writing Financial Analysis in Business Cases 1

Question 1

Which financial metric measures the time required to recover the initial investment from net cash inflows?

Accepted Answer

Payback Period

Answer

The payback period calculates how long it takes for cumulative net cash inflows to equal the initial investment outlay.

Question 2

In a business case, NPV stands for:

Accepted Answer

Net Present Value

Answer

NPV (Net Present Value) is the difference between the present value of cash inflows and outflows over a period of time.

Question 3

A business case with an IRR greater than the company's cost of capital should generally be:

Accepted Answer

Accepted

Answer

When IRR exceeds the cost of capital (hurdle rate), the project generates more return than its financing cost and should be accepted.

Question 4

Which cost type is excluded from a business case's incremental analysis because it has already been incurred?

Accepted Answer

Sunk costs

Answer

Sunk costs are past expenditures that cannot be recovered and should not influence future business case decisions.

Question 5

A sensitivity analysis in a business case is used to:

Accepted Answer

Test how NPV changes when key assumptions vary

Answer

Sensitivity analysis shows how sensitive the business case outcome is to changes in key variables like cost, revenue, or discount rate.

Business Case Writing Practice Test