CFC Business Financial Planning 3

Question 1

A business owner wants to reward key employees with equity-like incentives without diluting ownership. Which tool best accomplishes this?

Accepted Answer

Phantom stock plan

Answer

Issuing restricted stock units

Answer

Granting actual stock options

Answer

Selling shares directly to employees

Question 2

When advising on exit strategy, a management buyout (MBO) is characterized by:

Accepted Answer

The existing management team purchasing the business, often with debt financing

Answer

Selling to a strategic competitor

Answer

An initial public offering of company shares

Answer

Transferring ownership to an ESOP only

Question 3

The 'goodwill' component of a business sale price represents:

Accepted Answer

Value above the fair market value of identifiable tangible and intangible assets, reflecting factors like reputation and customer relationships

Answer

The book value of tangible assets

Answer

The total debt assumed by the buyer

Answer

Inventory and accounts receivable only

Question 4

For a sole proprietor, self-employment tax is calculated on:

Accepted Answer

Net self-employment earnings (after the 50% SE tax deduction)

Answer

Gross revenue

Answer

W-2 wages paid to employees

Answer

Net profit before any deductions

Question 5

A CFC reviewing a client's S corporation notes accumulated earnings in the E&P account from prior C corporation years. Distributions from this account are treated as:

Accepted Answer

Ordinary dividends taxable to shareholders

Answer

Return of capital (tax-free)

Answer

Capital gains

Answer

Qualified business income eligible for the 20% deduction

Question 6

Which measure captures the economic profit of a business after subtracting the full cost of capital from net operating profit?

Accepted Answer

Economic Value Added (EVA)

Answer

EBITDA

Answer

Return on assets

Answer

Operating cash flow