CTP Financial Planning and Analysis 3

Question 1

A company reports EBITDA of $5M, interest expense of $1M, taxes of $0.5M, depreciation of $0.8M, and amortization of $0.2M. What is net income?

Accepted Answer

$2.5M

Answer

Net income = EBITDA − D&A − Interest − Taxes = $5M − $1M − $0.5M − $1M = $2.5M.

Question 2

Which working capital metric best predicts near-term liquidity stress in financial planning models?

Accepted Answer

Cash conversion cycle (CCC)

Answer

The cash conversion cycle measures how long cash is tied up in operations (DIO + DSO − DPO), directly revealing liquidity pressure timing.

Question 3

A treasury team uses a top-down budgeting approach. What is the primary characteristic of this method?

Accepted Answer

Senior management sets overall targets that cascade down to operating units

Answer

Top-down budgeting starts with executive-level targets and constraints that are then distributed to lower organizational levels.

Question 4

Which cost behavior pattern describes a cost that remains fixed within a relevant range but jumps to a higher level when activity exceeds that range?

Accepted Answer

Step-fixed cost

Answer

Step-fixed costs (also called step costs) are constant within a capacity range but increase in discrete jumps when activity crosses a threshold.

Question 5

When comparing two mutually exclusive projects with different lives using NPV, which adjustment is most appropriate?

Accepted Answer

Use the equivalent annual annuity (EAA) method

Answer

The equivalent annual annuity converts NPV to an annual figure, enabling fair comparison of projects with unequal lifespans.

Certified Treasury Professional Exam Practice Test