CCM Financial Analysis & Planning 2

Question 1

A company has a current ratio of 1.8 and a quick ratio of 0.9. What does this discrepancy most likely indicate?

Accepted Answer

The company has significant inventory relative to current assets

Answer

A large gap between current and quick ratios indicates that inventory makes up a significant portion of current assets, since the quick ratio excludes inventory.

Question 2

Which budgeting approach starts each period with a zero base and requires managers to justify all expenditures?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting (ZBB) requires every budget line item to be justified from scratch each period rather than adjusting prior-year figures.

Question 3

A project has an IRR of 14% and the company's WACC is 11%. What should management do?

Accepted Answer

Accept the project because IRR exceeds WACC

Answer

When IRR exceeds the cost of capital (WACC), the project creates value and should be accepted under the IRR decision rule.

Question 4

Contribution margin per unit is calculated as:

Accepted Answer

Selling price minus variable cost per unit

Answer

Contribution margin per unit equals the selling price minus variable cost per unit, showing how much each unit contributes toward covering fixed costs.

Question 5

A sensitivity analysis on a financial model primarily helps managers to:

Accepted Answer

Understand how changes in key assumptions affect outcomes

Answer

Sensitivity analysis tests how much the output (e.g., NPV or profit) changes when individual input assumptions are varied, highlighting the most critical variables.

(CCM) Certified Commercial Manager Practice Test

(CCM) Certified Commercial Manager Practice Test

CCM Financial Analysis & Planning 2