CFM CFM Strategic Finance & Decision Making 2

Question 1

What is the purpose of scenario analysis in strategic financial planning?

Accepted Answer

To evaluate financial outcomes under different plausible future conditions (base, best, worst case)

Answer

Scenario analysis tests the financial plan against multiple distinct sets of assumptions (e.g., economic recession, stable growth, boom), helping management prepare for uncertainty.

Question 2

Which strategic framework analyzes a company's Strengths, Weaknesses, Opportunities, and Threats?

Accepted Answer

SWOT Analysis

Answer

SWOT Analysis categorizes internal factors (strengths/weaknesses) and external factors (opportunities/threats) to guide strategic planning and decision-making.

Question 3

When evaluating a potential acquisition, the 'synergies' refer to:

Accepted Answer

Value created through combining two firms that exceeds the sum of their standalone values

Answer

Synergies are additional value created by combining companies through cost savings, revenue enhancements, or financial benefits not achievable independently.

Question 4

What is 'agency cost' in corporate finance?

Accepted Answer

Costs arising from conflicts of interest between principals (shareholders) and agents (managers)

Answer

Agency costs arise when managers (agents) act in their own interests rather than maximizing shareholder (principal) wealth, including monitoring costs and value loss from misaligned incentives.

Question 5

A company generates $10M in revenue with a 15% net profit margin. If the firm's P/E ratio is 20x, what is the market capitalization?

Accepted Answer

$200 million

Answer

Net income = $10M × 15% = $1.5M; Market Cap = P/E × Net Income = 20 × $1.5M = $30M. Wait — that's $30M. Let me recalculate. P/E × EPS × shares, but using net income: 20 × $1.5M = $30M.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM CFM Strategic Finance & Decision Making 2