CPFM Strategic Financial Planning 3 — Questions and Answers
Question 1: A CFO must choose between two projects with equal NPV but different risk profiles. Which tool best quantifies the risk difference?
- Sensitivity analysis (Correct answer)
- A petty cash log
- A purchase requisition
- A timesheet
Correct answer: Sensitivity analysis
Sensitivity analysis shows how changes in key assumptions affect outcomes, revealing each project's risk exposure.
Question 2: Strategic financial planning should align with which overarching organizational element?
- The corporate vision and mission (Correct answer)
- The office floor plan
- The IT help desk schedule
- The cafeteria menu
Correct answer: The corporate vision and mission
Effective financial strategy must support and align with the organization's vision and mission.
Question 3: Which financing decision affects a firm's long-term capital structure?
- Issuing long-term debt versus equity (Correct answer)
- Paying a monthly utility bill
- Buying office supplies
- Reimbursing travel
Correct answer: Issuing long-term debt versus equity
Choosing between long-term debt and equity directly shapes the firm's capital structure and financial risk.
Question 4: A strategic plan projects a funding gap in year three. What is the most appropriate proactive response?
- Secure financing arrangements in advance (Correct answer)
- Ignore it until it occurs
- Delete the projection
- Reduce reporting frequency
Correct answer: Secure financing arrangements in advance
Identifying a future funding gap allows the firm to arrange financing proactively before liquidity is threatened.
Question 5: Which ratio is most useful for assessing whether a strategic plan keeps the firm solvent over time?
- Debt-to-equity ratio (Correct answer)
- Inventory turnover
- Click-through rate
- Employee satisfaction index
Correct answer: Debt-to-equity ratio
The debt-to-equity ratio measures leverage and helps assess long-term solvency under a strategic plan.
Question 6: In strategic planning, a 'pro forma' financial statement is best described as:
- A projected statement based on assumptions (Correct answer)
- A historical audited statement
- A tax return
- A bank statement
Correct answer: A projected statement based on assumptions
Pro forma statements are forward-looking projections built on planning assumptions.
Question 7: Which factor would most likely cause a firm to revise its long-range financial plan?
- A major shift in market conditions (Correct answer)
- A single late invoice
- Replacing a printer cartridge
- A staff lunch event
Correct answer: A major shift in market conditions
Significant changes in market conditions warrant revisiting and revising the long-range financial plan.
CPFM Strategic Financial Planning 3
A CFO must choose between two projects with equal NPV but different risk profiles.
Which tool best quantifies the risk difference?