CPSM Exam 1 Questions with Verified Answers Latest Update 2025-2026 Already Passed
___ - the rate of return that would make the present value of future cash flows plus the final market
value or an investment of biz opportunity equal to the current market price of the investment
opportunity - Answers internal rate of return (IRR)
What is the internal rate of return often used for? - Answers To evaluate the attractiveness of an
investment
What is the interest rate at which the net present value from an investment is zero? - Answers internal
rate of return (IRR)
Which variable represents internal rate of return in the NPV formula? - Answers r
___ - the average annual return gained from an investment - Answers internal rate of return (IRR)
____ measures how effectively the org is using the assets involved in a particular project - Answers
Return on assets employed (ROAE)
___ measures how effectively the org is using the entirety of its assets - Answers return on total assets
(ROTA)
___ investigates the profitability of an org in relation to its sales. - Answers margin analysis
ROAE= - Answers (net income + interest expense after tax) / average capital employed
ROTA = - Answers net income / total assets
Net Operating Margin = - Answers total operating income / total sales
___ expresses profitability as a ratio of income to sales - Answers net operating margin
Does profitability indicate the cash requirements for running the business or the cash generated from
operations? - Answers no
What metric does SCM use to compare suppliers to see which is most profitable? - Answers net
operating margin
Which financial document shows the financial position of an org at a given point of time, as a reflection
of what it owes and what it owns? - Answers balance sheet
___ are comprised of debts, including bonds and notes - Answers liabilities
Which financial document shows earnings for a given period (usually one year) and reconciles earnings
from sales against cost of goods sold to indicate net income - Answers income statement (also known as
P&L statement)
What is the first item on the income statement? - Answers net sales
,How is net sales calculated? - Answers gross sales - amount of returned goods
How is gross profit calculated? - Answers net sales - cost to product goods
How is net income calculated? - Answers gross profit - total expenses (sales expense, interest and tax)
___ represents the notion that the same amount of money has a different value today than in the future
- Answers time value of money
Do operating leases typically cover the asset's useful life? - Answers No, they are typically to satisfy short
term requirements
The ___ lease runs for the full life of the equipment and is typically entered into for financial
considerations, when the lessee seeks to gain financial leverage and related long-term financial benefits.
- Answers financial (or capital) lease
How is a financial lease represented on the lessee's books? - Answers as an asset
What are the 3 major types of financial leases? - Answers 1) full payout
2) partial payout
3) lease/purchase
What does the lessee pay with a full-payout lease? - Answers the full purchase price, plus interest
charges, maintenance, insurance and admin costs
What does the lessee pay with a partial payout lease? - Answers the difference between the original
purchase price and the resale value, plus interest charges. (e.g. automobile lease)
What is the purchase price in a lease/purchase contract? - Answers The residual value of the asset at the
end of the lease
What type of lease involves third-party lessor that buys the asset from an equipment producer and
leases it to another org? - Answers leveraged lease
What does a leveraged lease result from? - Answers the unique tax advantages and borrowing power
that the lease provides the lessor.
How is the lender's debt secured with a leveraged lease? - Answers the lender's debt is secured
primarily by the leased asset and, to some extent, by the financial capacity of the lessee
What type of lease is similar to a blanket order contract? - Answers a master lease (it provides
predetermined and prenegotiated terms and conditions for various equipment to be leased over a given
period.
When is a master lease appropriate? - Answers for operating-type leases when needs are for shorter
periods
, What type of leases originated in the aircraft industry? - Answers dry and wet leases
What type of lease includes financing, fuel and maintenance for the piece of equipment leased? -
Answers wet lease
What type of lease provides only for financing and Is sometimes known as a straight lease? - Answers
dry lease
In a ____ arrangement, the owner of the equipment or property sells the asset to a second party and
then leases it back. - Answers sale and leaseback arrangement
What is the primary reason for sale and leaseback arrangements? - Answers to generate capital (allows
org to obtain needed capital while maintaining use of the asset)
There are about 24 things to consider in the lease vs. buy decision. What are some of them? - Answers
1) Financial factors: inflation, capital budget, third-party reimbursement, interest rates, balance sheet
considerations, cash flow analysis, depreciation, tax considerations, residual value, payment schedules,
IRR
2) operational factors: obsolescence, maintenance services, admin overhead, operating costs, life of the
asset, customization, term of the lease,
3) other factors: ownership benefits, limitation of sources of supply, early termination, insurance, org
policy, emergency situations
When does a third-party reimbursement for a leasing contract typically occur? - Answers Such a sale
typically results from a leveraged lease when the manufacturer or equipment provider is not interested
in collection activities
How does leasing impact an org's balance sheet? - Answers It can make it appear stronger than it would
if the equipment was financed.
How does leasing appear on a income statement? - Answers as an expense in the period it is incurred
(so no debt appears on the balance sheet)
How does leasing impact the return on assets? - Answers It makes the return on assets greater than if
the assets were owned
Is leased equipment depreciated? - Answers not by the lessee
Are lease payments tax deductible? - Answers yes (which may lead to tax savings over ownership_
Which is greater, the IRR for a lease option or buy option? - Answers leasing (because it doesn't have as
high of cash outflow with equally high inflow)
What type of leases can be cancelled following a formal notification period? - Answers open-ended lease
___ - the rate of return that would make the present value of future cash flows plus the final market
value or an investment of biz opportunity equal to the current market price of the investment
opportunity - Answers internal rate of return (IRR)
What is the internal rate of return often used for? - Answers To evaluate the attractiveness of an
investment
What is the interest rate at which the net present value from an investment is zero? - Answers internal
rate of return (IRR)
Which variable represents internal rate of return in the NPV formula? - Answers r
___ - the average annual return gained from an investment - Answers internal rate of return (IRR)
____ measures how effectively the org is using the assets involved in a particular project - Answers
Return on assets employed (ROAE)
___ measures how effectively the org is using the entirety of its assets - Answers return on total assets
(ROTA)
___ investigates the profitability of an org in relation to its sales. - Answers margin analysis
ROAE= - Answers (net income + interest expense after tax) / average capital employed
ROTA = - Answers net income / total assets
Net Operating Margin = - Answers total operating income / total sales
___ expresses profitability as a ratio of income to sales - Answers net operating margin
Does profitability indicate the cash requirements for running the business or the cash generated from
operations? - Answers no
What metric does SCM use to compare suppliers to see which is most profitable? - Answers net
operating margin
Which financial document shows the financial position of an org at a given point of time, as a reflection
of what it owes and what it owns? - Answers balance sheet
___ are comprised of debts, including bonds and notes - Answers liabilities
Which financial document shows earnings for a given period (usually one year) and reconciles earnings
from sales against cost of goods sold to indicate net income - Answers income statement (also known as
P&L statement)
What is the first item on the income statement? - Answers net sales
,How is net sales calculated? - Answers gross sales - amount of returned goods
How is gross profit calculated? - Answers net sales - cost to product goods
How is net income calculated? - Answers gross profit - total expenses (sales expense, interest and tax)
___ represents the notion that the same amount of money has a different value today than in the future
- Answers time value of money
Do operating leases typically cover the asset's useful life? - Answers No, they are typically to satisfy short
term requirements
The ___ lease runs for the full life of the equipment and is typically entered into for financial
considerations, when the lessee seeks to gain financial leverage and related long-term financial benefits.
- Answers financial (or capital) lease
How is a financial lease represented on the lessee's books? - Answers as an asset
What are the 3 major types of financial leases? - Answers 1) full payout
2) partial payout
3) lease/purchase
What does the lessee pay with a full-payout lease? - Answers the full purchase price, plus interest
charges, maintenance, insurance and admin costs
What does the lessee pay with a partial payout lease? - Answers the difference between the original
purchase price and the resale value, plus interest charges. (e.g. automobile lease)
What is the purchase price in a lease/purchase contract? - Answers The residual value of the asset at the
end of the lease
What type of lease involves third-party lessor that buys the asset from an equipment producer and
leases it to another org? - Answers leveraged lease
What does a leveraged lease result from? - Answers the unique tax advantages and borrowing power
that the lease provides the lessor.
How is the lender's debt secured with a leveraged lease? - Answers the lender's debt is secured
primarily by the leased asset and, to some extent, by the financial capacity of the lessee
What type of lease is similar to a blanket order contract? - Answers a master lease (it provides
predetermined and prenegotiated terms and conditions for various equipment to be leased over a given
period.
When is a master lease appropriate? - Answers for operating-type leases when needs are for shorter
periods
, What type of leases originated in the aircraft industry? - Answers dry and wet leases
What type of lease includes financing, fuel and maintenance for the piece of equipment leased? -
Answers wet lease
What type of lease provides only for financing and Is sometimes known as a straight lease? - Answers
dry lease
In a ____ arrangement, the owner of the equipment or property sells the asset to a second party and
then leases it back. - Answers sale and leaseback arrangement
What is the primary reason for sale and leaseback arrangements? - Answers to generate capital (allows
org to obtain needed capital while maintaining use of the asset)
There are about 24 things to consider in the lease vs. buy decision. What are some of them? - Answers
1) Financial factors: inflation, capital budget, third-party reimbursement, interest rates, balance sheet
considerations, cash flow analysis, depreciation, tax considerations, residual value, payment schedules,
IRR
2) operational factors: obsolescence, maintenance services, admin overhead, operating costs, life of the
asset, customization, term of the lease,
3) other factors: ownership benefits, limitation of sources of supply, early termination, insurance, org
policy, emergency situations
When does a third-party reimbursement for a leasing contract typically occur? - Answers Such a sale
typically results from a leveraged lease when the manufacturer or equipment provider is not interested
in collection activities
How does leasing impact an org's balance sheet? - Answers It can make it appear stronger than it would
if the equipment was financed.
How does leasing appear on a income statement? - Answers as an expense in the period it is incurred
(so no debt appears on the balance sheet)
How does leasing impact the return on assets? - Answers It makes the return on assets greater than if
the assets were owned
Is leased equipment depreciated? - Answers not by the lessee
Are lease payments tax deductible? - Answers yes (which may lead to tax savings over ownership_
Which is greater, the IRR for a lease option or buy option? - Answers leasing (because it doesn't have as
high of cash outflow with equally high inflow)
What type of leases can be cancelled following a formal notification period? - Answers open-ended lease
