RFC Cash Flow & Debt Management 3

Question 1

A client is 'cash flow positive' but consistently overdraws their checking account. What is the MOST likely cause?

Accepted Answer

Timing mismatch between income receipt and bill due dates

Answer

Even with positive net cash flow, overdrafts occur when bills are due before income arrives, a timing or liquidity problem.

Question 2

In the context of RFC planning, 'discretionary cash flow' is BEST defined as:

Accepted Answer

Net income minus debt service and essential expenses

Answer

Discretionary cash flow is what remains after covering all necessary expenses and debt service, available for savings or spending.

Question 3

Which debt repayment strategy results in the highest total interest paid over time?

Accepted Answer

Snowball method

Answer

The snowball method targets smallest balances first, ignoring interest rates, which often results in more total interest paid.

Question 4

A client's free cash flow is defined as operating cash flow minus:

Accepted Answer

Capital expenditures

Answer

Free cash flow = operating cash flow minus capital expenditures, representing cash available after maintaining/growing assets.

Question 5

Under RFC debt management principles, which action BEST improves a client's credit utilization ratio?

Accepted Answer

Paying down revolving balances below 30% of limits

Answer

Credit utilization = balances ÷ limits; keeping it below 30% positively impacts credit scores.

(RFC) Registered Financial Consultant Practice Test