CBO Financial Planning & Analysis 4

Question 1

A business owner is choosing between leasing and buying equipment. Which financial concept is most relevant to this decision?

Accepted Answer

Net present value (NPV) comparison

Answer

Comparing the NPV of lease payments versus purchase costs (including tax benefits) reveals which option is less costly in today's dollars.

Question 2

Which financial metric measures the return generated relative to the equity invested by shareholders?

Accepted Answer

Return on equity (ROE)

Answer

ROE = Net Income / Shareholders' Equity, showing how much profit is earned per dollar of equity.

Question 3

A pro forma income statement is best described as:

Accepted Answer

A projected income statement based on assumptions about the future

Answer

Pro forma statements are forward-looking projections used in planning, fundraising, or evaluating strategic decisions.

Question 4

Gross profit margin is calculated as:

Accepted Answer

(Revenue − COGS) / Revenue × 100

Answer

Gross profit margin = (Revenue − Cost of Goods Sold) / Revenue × 100, showing the percentage of revenue retained after direct production costs.

Question 5

When a company's operating leverage is high, what is the implication?

Accepted Answer

A small change in revenue leads to a large change in operating profit

Answer

High operating leverage means fixed costs dominate; once they are covered, additional revenue flows almost entirely to profit, amplifying both gains and losses.

(CBO) Certified Business Operator Practice Test

(CBO) Certified Business Operator Practice Test

CBO Financial Planning & Analysis 4