CFC Financial Management & Strategy 5

Question 1

A CFO is considering a share repurchase versus a cash dividend of equal size. Which statement about the tax treatment is most accurate in the US?

Accepted Answer

Repurchases may be tax-advantaged for shareholders since gains are deferred until shares are sold

Answer

Share repurchases allow shareholders to choose when to sell, deferring capital gains tax, whereas dividends create an immediate taxable event for all recipients.

Question 2

A company's cash conversion cycle (CCC) is 45 days. Management wants to reduce it. Which action would be most effective?

Accepted Answer

Negotiating longer payment terms with suppliers

Answer

CCC = DIO + DSO − DPO; extending Days Payable Outstanding (DPO) by getting longer supplier terms directly reduces the CCC.

Question 3

Which financial metric is most useful for comparing the operating performance of two companies with different capital structures?

Accepted Answer

EBITDA margin

Answer

EBITDA margin excludes interest (and thus leverage effects), allowing operating performance comparison across firms with differing debt levels.

Question 4

A breakeven analysis shows a company's fixed costs are $500,000, price per unit is $50, and variable cost per unit is $30. What is the breakeven quantity?

Accepted Answer

25,000 units

Answer

Breakeven = Fixed Costs ÷ Contribution Margin per unit = $500,000 ÷ ($50 − $30) = $500,000 ÷ $20 = 25,000 units.

Question 5

When a controller applies sensitivity analysis to a valuation model, the output is best described as:

Accepted Answer

The change in NPV resulting from varying one input at a time while holding others constant

Answer

Sensitivity analysis isolates the effect of changing one variable (e.g., growth rate or discount rate) while keeping all other assumptions fixed.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Financial Management & Strategy 5