Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Terms and concepts

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Ted has 10 content projects that he wants to push forward. Each one has a positive net present value with an initial up-front investment followed by a multiple-year revenue stream. Which of the following would be the biggest reason why he would not pursue them all right away?
  1. Lock-in.
  2. Switching costs.
  3. Cash flow cycle.
  4. Synergies.
  5. Risk.
Explanation
The best answer here is cash flow. It is important to recognize the impact of negative cash flow in early periods from investments.

Key Takeaway: Cash is the lifeblood of a company. No company can afford to run out of it. Thus, a company cannot make all the investments that might be profitable because it needs cash to run its operations.
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