CBS Corporate Finance & Investment 5

Question 1

Which working capital metric measures how quickly a company collects its receivables?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO = (Accounts Receivable / Revenue) × 365, indicating the average number of days to collect payment.

Question 2

In discounted cash flow analysis, the terminal value typically represents:

Accepted Answer

The value of cash flows beyond the explicit forecast horizon

Answer

Terminal value captures the present value of all cash flows after the explicit forecast period, often using a perpetuity growth formula.

Question 3

Which risk is NOT diversifiable in a well-constructed portfolio?

Accepted Answer

Systematic market risk

Answer

Systematic risk (market risk) affects all securities and cannot be eliminated through diversification.

Question 4

A firm has a P/E ratio of 20 and EPS of $3. What is the estimated stock price?

Accepted Answer

$60.00

Answer

Stock price = P/E × EPS = 20 × $3 = $60.

Question 5

When evaluating mutually exclusive projects with different lives, the best approach is to use:

Accepted Answer

Equivalent Annual Annuity (EAA) or replacement chain method

Answer

EAA or replacement chain normalizes projects of unequal duration for a fair comparison.

(CBS) Certified Budget Specialist Practice Test