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

Phantom stock plans provide cash payouts tied to hypothetical stock value appreciation, rewarding key employees with equity-like returns without actually transferring ownership.

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

In an MBO, the incumbent management team acquires the business, frequently using leveraged financing, allowing the owner to exit while keeping trusted leaders in place.

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

Goodwill in a business sale is the premium paid over and above the fair market value of all identifiable assets, attributed to intangibles like brand, customer base, and earning power.

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

Self-employment tax is applied to net self-employment income, which is reduced by 50% of the SE tax itself as an above-the-line deduction before calculating the tax owed.

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

S corporations with prior C corporation accumulated E&P that distribute from that account trigger dividend income to shareholders, unlike normal S corp distributions from the AAA account.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Business Financial Planning 3