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 is evaluating two payment timing scenarios: Option A collects $100,000 in 30 days; Option B collects $100,000 in 90 days. Assuming a cost of capital of 12% annually, approximately how much more valuable is Option A?
Answer: $2,000
The 60-day difference at 12% annually (1% per month) on $100,000 is approximately $100,000 × 0.01 × 2 = $2,000, making Option A more valuable by roughly that amount.
In project financial management, what does 'negative working capital' indicate for an ongoing project?
Answer: Current liabilities exceed current assets, signaling potential payment default risk
Negative working capital means the project owes more in the near term than it has available in liquid assets, which is a warning sign of impending cash flow problems.
A project manager is asked to perform a 13-week rolling cash flow forecast. What is the primary advantage of using a rolling rather than a static forecast?
Answer: It continuously incorporates the latest actual data to maintain accuracy as the project evolves
A rolling forecast is updated each period by dropping the oldest week and adding a new future week, ensuring the forecast always reflects current project conditions.
Which technique allows a project team to reduce cash outflows without reducing project scope or quality?
Answer: Negotiating extended payment terms with vendors
Negotiating extended vendor payment terms (e.g., net-45 instead of net-30) delays cash outflows, improving liquidity without impacting scope or quality.
What is 'overbilling' in a project context, and what is its primary cash flow benefit?
Answer: Billing for work slightly ahead of actual completion percentage to improve near-term cash position
Overbilling (billing slightly ahead of percentage complete) is a legal cash flow technique that accelerates inflows, though it must stay within contractual and ethical limits.
A project manager is reviewing a cash flow waterfall diagram. What does this diagram primarily illustrate?
Answer: The sequence in which different stakeholders receive payments from project revenues
A cash flow waterfall diagram shows the priority order in which cash flows are distributed to different stakeholders (e.g., senior lenders first, then mezzanine, then equity), common in project finance structures.
Which of the following best explains why depreciation is added back to net income when constructing a project's operating cash flow statement?
Answer: Depreciation is a non-cash charge that reduces net income but does not involve an actual cash outflow
Because depreciation is a non-cash accounting expense, it must be added back to net income in the indirect method to accurately reflect actual cash generated from operations.