CBO Financial Planning & Analysis 2

Question 1

A company's contribution margin ratio is 40% and fixed costs are $200,000. What is the break-even point in sales dollars?

Accepted Answer

$500,000

Answer

Break-even sales = Fixed Costs / Contribution Margin Ratio = $200,000 / 0.40 = $500,000.

Question 2

Which financial statement best shows a company's ability to meet short-term obligations?

Accepted Answer

Balance sheet

Answer

The balance sheet shows current assets versus current liabilities, directly revealing short-term liquidity.

Question 3

A business is evaluating a project with an initial investment of $50,000 that generates $15,000 annually. What is the payback period?

Accepted Answer

3.33 years

Answer

Payback period = $50,000 / $15,000 per year = 3.33 years.

Question 4

What does a negative free cash flow most likely indicate?

Accepted Answer

The company is investing heavily or burning cash

Answer

Negative free cash flow often means the company is spending more on capital expenditures or operations than it generates, common in growth phases.

Question 5

Which budgeting approach starts from zero each period and requires justification for every expense?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting (ZBB) builds the budget from scratch each period, requiring justification for all expenditures.

(CBO) Certified Business Operator Practice Test