RFC Cash Flow & Debt Management 2

Question 1

A client's operating cash flow is $80,000 but net income is $110,000. Which scenario BEST explains this gap?

Accepted Answer

Significant increase in accounts receivable

Answer

An increase in accounts receivable means revenue was recognized but cash not yet collected, reducing operating cash flow below net income.

Question 2

When evaluating a client's debt affordability, which ratio directly compares annual debt obligations to gross income?

Accepted Answer

Total debt service ratio

Answer

The total debt service ratio (TDSR) divides all annual debt payments by gross income, showing what share of income goes to debt.

Question 3

A client has $15,000 in credit card debt at 22% APR and $20,000 in a car loan at 5%. Using the avalanche method, which debt should be prioritized?

Accepted Answer

Credit card, because it has the higher interest rate

Answer

The avalanche method targets the highest-interest debt first to minimize total interest paid over time.

Question 4

Which cash flow statement section reflects mortgage principal payments made by a client?

Accepted Answer

Financing activities

Answer

Principal repayments on loans are classified as financing cash outflows because they reduce a financial liability.

Question 5

A client wants to refinance a $300,000 mortgage from 7% to 5.5%. The closing costs are $6,000. Approximately how long is the break-even period if monthly savings are $250?

Accepted Answer

24 months

Answer

$6,000 ÷ $250/month = 24 months to recover the refinancing costs.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Cash Flow & Debt Management 2