Cash Flow Management Flashcards
7 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Flow Management flashcards as text
A project manager notices that cash outflows are consistently occurring two weeks before the corresponding cash inflows. Which technique best addresses this timing gap?
Answer: Accelerating accounts receivable collection
Accelerating accounts receivable collection shortens the gap between when work is performed and when payment is received, directly reducing timing mismatches.
Which of the following best describes the 'J-curve effect' commonly seen in project cash flows?
Answer: Initial negative cash outflows are followed by positive returns in later phases
The J-curve effect describes projects that require heavy upfront investment (negative cash flow) before generating returns, creating a J-shaped cumulative cash flow curve.
A project manager is using milestone-based billing. What is the primary cash flow risk of this approach?
Answer: Delays in milestone achievement defer cash inflows
Milestone-based billing ties payment to deliverable completion, so any schedule delay directly postpones cash receipts and strains project liquidity.
When calculating net cash flow for a project period, which formula is correct?
Answer: Net Cash Flow = Cash Inflows − Cash Outflows
Net cash flow is simply the difference between cash inflows received and cash outflows paid during a specific period, regardless of accrual accounting entries.
A project has a cumulative cash flow of −$200,000 at month 6 and is expected to reach breakeven at month 14. What does the area below the zero line on the cash flow curve represent?
Answer: The maximum financing or working capital requirement
The area below the zero line on a cumulative cash flow curve represents the maximum exposure or working capital that must be financed before the project becomes self-funding.
Which contract type gives a project manager the greatest visibility into and control over subcontractor cash outflows?
Answer: Cost-plus with open-book accounting
Cost-plus with open-book accounting requires the subcontractor to share all cost records, giving the PM full transparency into when and how cash is being spent.
A project manager wants to defer $150,000 in non-critical equipment purchases from Q3 to Q4 to preserve liquidity. Which cash flow management practice does this represent?
Answer: Cash flow smoothing through expenditure deferral
Deferring non-critical expenditures to a later period is a cash flow smoothing technique that redistributes outflows to align with available funds.