FAC Cash Flow Management 5

Question 1

Which of the following best describes 'cash burn rate' for a startup company?

Accepted Answer

The rate at which the company spends its cash reserves each month

Answer

Cash burn rate measures how quickly a company uses up its cash reserves, typically expressed as a monthly figure.

Question 2

A company's cash flow from operations is $300,000 and its total debt is $1,500,000. What is its debt service coverage from operating cash flow perspective?

Accepted Answer

5.0

Answer

Cash flow to debt ratio = $300,000 ÷ $1,500,000 = 0.20, but expressed as a coverage ratio it shows debt repayment capacity.

Question 3

Under IFRS, dividends received can be classified as which type of cash flow activity?

Accepted Answer

Either operating or investing activities

Answer

IFRS permits dividends received to be classified as either operating or investing activities, giving more flexibility than US GAAP.

Question 4

Which technique helps a treasurer match the timing of cash inflows and outflows to minimize idle cash balances?

Accepted Answer

Cash flow synchronization

Answer

Cash flow synchronization aligns the timing of receipts and payments to reduce the need to hold excess idle cash.

Question 5

If a company factored $200,000 of receivables at a 3% fee, what is the net cash received?

Accepted Answer

$194,000

Answer

Net cash = $200,000 × (1 – 0.03) = $194,000 after the factoring fee.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Cash Flow Management 5