Strategic Financial Planning Flashcards

A company uses internal rate of return (IRR) to rank projects. A project is acceptable when its IRR is:

Answer: Greater than the cost of capital

A project creates value when its IRR exceeds the firm's cost of capital.

Which planning practice helps ensure a strategic plan remains relevant between annual cycles?

Answer: Rolling forecasts

Rolling forecasts continuously update projections, keeping the plan current as conditions change.

A firm with volatile cash flows is setting a dividend policy as part of strategic planning. The most prudent approach is to:

Answer: Adopt a conservative, sustainable payout

With volatile cash flows, a conservative and sustainable dividend payout protects liquidity and credibility.

Which of the following best represents a strategic, rather than operational, financial decision?

Answer: Entering a new geographic market

Entering a new market is a long-term, resource-intensive strategic decision.

When a strategic plan includes acquiring another company, the analysis should primarily focus on:

Answer: Expected synergies and integration costs

Acquisition analysis centers on projected synergies weighed against integration costs and risks.

A strategic capital budget differs from an operating budget mainly because it:

Answer: Focuses on long-term asset investments

The capital budget addresses long-term investments in assets, while the operating budget handles routine expenses.

Which approach allows management to defer, expand, or abandon a project based on future information?

Answer: Real options analysis

Real options analysis values managerial flexibility to alter strategic decisions as conditions unfold.