Business Financial Planning Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Business Financial Planning flashcards as text
A business owner wants to reward key employees with equity-like incentives without diluting ownership. Which tool best accomplishes this?
Answer: Phantom stock plan
Phantom stock plans provide cash payouts tied to hypothetical stock value appreciation, rewarding key employees with equity-like returns without actually transferring ownership.
When advising on exit strategy, a management buyout (MBO) is characterized by:
Answer: The existing management team purchasing the business, often with debt financing
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.
The 'goodwill' component of a business sale price represents:
Answer: Value above the fair market value of identifiable tangible and intangible assets, reflecting factors like reputation and customer relationships
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.
For a sole proprietor, self-employment tax is calculated on:
Answer: Net self-employment earnings (after the 50% SE tax deduction)
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.
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:
Answer: Ordinary dividends taxable to shareholders
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.
Which measure captures the economic profit of a business after subtracting the full cost of capital from net operating profit?
Answer: Economic Value Added (EVA)
EVA equals net operating profit after tax (NOPAT) minus the dollar cost of all capital employed (WACC × invested capital), measuring whether a business truly creates or destroys shareholder value.