CS CS Financial Strategy & Resource Allocation 1

Question 1

Which financial metric best measures a strategy's ability to create shareholder value above its cost of capital?

Accepted Answer

Economic Value Added (EVA)

Answer

EVA measures net operating profit after taxes minus the capital charge, indicating true economic profit beyond the cost of capital.

Question 2

A certified strategist reviewing capital allocation should prioritize projects based on which primary criterion?

Accepted Answer

Risk-adjusted return on investment

Answer

Risk-adjusted ROI accounts for both expected returns and the probability of achieving them, enabling sound capital allocation decisions.

Question 3

What does a company's Weighted Average Cost of Capital (WACC) represent in strategic financial planning?

Accepted Answer

The minimum return required to satisfy all capital providers

Answer

WACC is the blended rate a company must earn on its investments to satisfy both debt holders and equity shareholders.

Question 4

In zero-based budgeting, departments must justify every expense from which starting point?

Accepted Answer

Zero, regardless of prior budgets

Answer

Zero-based budgeting requires every line item to be justified anew each cycle rather than incremented from a prior baseline.

Question 5

Which ratio most directly signals whether a firm can fund its strategic initiatives from internal cash flow?

Accepted Answer

Free cash flow to revenue ratio

Answer

Free cash flow to revenue shows the proportion of sales converted to discretionary cash available for strategic reinvestment.

(CS) Certified Strategist Practice Test