Strategic Planning & Analysis Flashcards

A firm faces a decision it can delay a year to learn whether demand materializes. Which valuation tool best captures the value of that flexibility?

Answer: Real options analysis

Real options analysis puts a value on managerial flexibility, such as the option to defer, expand, or abandon, which static DCF ignores.

In the BCG growth-share matrix, a business unit with high market share in a low-growth market is a:

Answer: Cash cow

Cash cows hold a strong share in mature markets and generate surplus cash to fund other units.

When evaluating mutually exclusive projects with different lives, which method gives a fair comparison?

Answer: Equivalent annual annuity (EAA)

EAA converts each project's NPV into a level annual amount, so projects with unequal lives can be compared.

A CFO runs a sensitivity analysis and finds NPV turns negative if unit volume falls just 4%. What does this mainly indicate?

Answer: The project is highly exposed to volume risk and needs mitigation or more validation

A small break-even margin on a key driver means the project's value is fragile to that variable.

Zero-based budgeting is most useful when management wants to:

Answer: Justify every expense from scratch and remove legacy spending

ZBB requires every cost to be justified each cycle, which exposes inefficient legacy spending.

Which statement best describes the role of driver-based planning in FP&A?

Answer: It links financial outcomes to operational metrics such as headcount, units, and conversion rates

Driver-based models tie financials to operational drivers so leaders can see how operational changes affect results.

In a SWOT analysis, a new competitor entering the market with lower-cost technology is classified as a(n):

Answer: Threat

Threats are external factors that could hurt performance, and a new low-cost entrant is a classic example.