CPA Canada Finance Sample Questions & Practice Test

CPA Canada Finance elective preparation should connect valuation, financing, risk, investment decisions, and working-capital analysis to practical recommendations. A strong answer explains assumptions and business consequences, not just a calculation.

This page includes 12 original Finance sample questions for initial review. They are not official CPA Canada questions and do not reproduce module-assessment cases.

What Finance practice should test

• selecting relevant cash flows and assumptions for investment decisions
• identifying risk, financing, and liquidity constraints
• comparing valuation methods without treating one estimate as perfect
• making recommendations that consider both quantitative and qualitative evidence

How to use this Finance preview

Use the 12-question set below to check whether your calculations support a decision. If the math is correct but the recommendation is wrong, the gap is usually assumptions, risk, liquidity, or implementation feasibility rather than formula recall.

Before the sample set, use the CPA Canada Finance Cheat Sheet to review valuation, capital budgeting, working-capital, financing, risk, and recommendation cues.

Sample Exam Questions

Try these 12 original sample questions for CPA Canada Finance. They are designed for self-assessment and are not taken from the live exam.

Question 1

Topic: capital budgeting

A project has positive forecast cash flows but requires specialized staff the company has not hired yet. What should the recommendation include?

• A. Approve the project because the forecast is positive
• B. Reject all projects requiring new staff
• C. Assess staffing feasibility, timing, training cost, sensitivity, and implementation risk before approval
• D. Ignore staffing because it is not a finance issue

Best answer: C

Explanation: Finance answers should not rely on a single positive forecast. Execution risk can change timing, cost, and probability of success.

Question 2

Topic: working capital

A company is profitable but has rising receivables, slower collections, and increasing line-of-credit use. What is the strongest concern?

• A. Profitability always means cash flow is healthy
• B. Working-capital deterioration may create liquidity pressure despite accounting profit
• C. Receivables should never be offered to customers
• D. The issue is only an income-tax problem

Best answer: B

Explanation: Profit and cash are different. Finance candidates should connect receivable collection and credit use to liquidity risk and financing needs.

Question 3

Topic: valuation

A business owner wants to value the company using only last year’s unusually high earnings. What is the best response?

• A. Consider normalized earnings, sustainability, risk, growth, comparable data, and unusual items
• B. Use last year’s earnings because it gives the highest value
• C. Use book value only for every business
• D. Avoid valuation because estimates are never useful

Best answer: A

Explanation: Valuation requires judgment about sustainable performance. A one-year result may be distorted by non-recurring items or unusual market conditions.

Question 4

Topic: financing mix

A company wants to fund long-term equipment with a short-term demand loan because the initial rate is lower. What is the best risk to identify?

• A. Equity financing is always cheaper than debt
• B. Short-term rates remove all risk
• C. Asset life and financing term may be mismatched, creating refinancing and liquidity risk
• D. Equipment should never be financed

Best answer: C

Explanation: Financing should match the nature and cash flows of the asset where possible. Short-term borrowing may appear cheaper but can increase refinancing risk.

Question 5

Topic: investment risk

A client proposes investing excess cash needed for payroll in a volatile equity fund for three months. What is the best recommendation?

• A. Invest because equities have higher long-term returns
• B. Keep operating cash in low-risk, liquid instruments aligned with the short time horizon
• C. Invest only if the fund performed well last year
• D. Borrow for payroll if the investment declines

Best answer: B

Explanation: The time horizon and purpose of funds matter. Operating cash needed soon should not be exposed to volatility that could impair payroll or supplier payments.

Question 6

Topic: sensitivity analysis

A project’s value depends heavily on customer retention, but the forecast uses one optimistic retention assumption. What should the candidate recommend?

• A. Accept the optimistic assumption because management provided it
• B. Remove the project from consideration
• C. Hide the assumption to avoid confusing the board
• D. Run sensitivity or scenario analysis and explain the break-even retention level

Best answer: D

Explanation: Sensitivity analysis shows which assumptions drive the decision. Finance answers should identify the variable that could reverse the recommendation.

Question 7

Topic: dividend policy

A private company wants to increase dividends even though major debt repayments are due next year. What should be analyzed first?

• A. Cash forecasts, covenant restrictions, reinvestment needs, shareholder expectations, and financing flexibility
• B. Last year’s dividend only
• C. The owner’s preferred lifestyle
• D. Whether dividends can be recorded as revenue

Best answer: A

Explanation: Dividend decisions are capital-allocation decisions. The recommendation should consider liquidity, covenants, investment needs, and owners’ objectives.

Question 8

Topic: risk management

A company has sales in U.S. dollars and costs in Canadian dollars. Exchange rates have become volatile. What is the best first step?

• A. Ignore the risk because foreign sales are profitable
• B. Speculate in currency markets to offset all possible losses
• C. Quantify the exposure, natural offsets, pricing options, and hedging alternatives
• D. Stop selling to all foreign customers immediately

Best answer: C

Explanation: Risk management starts by identifying and measuring exposure. Hedging may help, but the candidate should first understand the cash-flow risk and available responses.

Question 9

Topic: acquisition decision

A target company has strong revenue but weak controls and customer concentration. What should due diligence emphasize?

• A. Revenue growth only
• B. Customer concentration, control environment, quality of earnings, integration risk, and valuation assumptions
• C. The target’s logo and branding
• D. Whether the seller prefers cash or shares only

Best answer: B

Explanation: Acquisition analysis should test sustainability and risk. High revenue may hide dependence on a few customers or weak controls that affect value.

Question 10

Topic: credit decision

A customer asks for much larger credit terms but has delayed payments twice. What should the finance team do?

• A. Increase the limit to keep the sale
• B. Cancel the customer immediately
• C. Approve the request if the sales team is confident
• D. Review payment history, credit exposure, margin, security, and collection terms before approving

Best answer: D

Explanation: Credit decisions balance revenue with collection risk and cash flow. The finance answer should evaluate exposure and risk controls.

Question 11

Topic: financial communication

A board asks why actual cash is lower than forecast. What is the best response?

• A. Explain key drivers such as receivables, inventory, capital spending, financing, and forecast assumptions
• B. Provide only the income statement
• C. Blame operations without evidence
• D. Say cash is not important if profit is positive

Best answer: A

Explanation: Finance communication should reconcile results to drivers and assumptions. Cash variance analysis often requires working-capital and capital-spending explanations.

Question 12

Topic: recommendation quality

Two investment options have similar expected returns, but one has much higher downside risk and less liquidity. What should the candidate emphasize?

• A. Pick randomly because expected returns are similar
• B. Choose the higher-risk option because it sounds more sophisticated
• C. Ignore liquidity if the expected return is acceptable
• D. Compare risk, liquidity, time horizon, strategic fit, and downside impact before recommending

Best answer: D

Explanation: Expected return alone is not enough. Finance candidates should consider whether the organization can tolerate the downside and liquidity profile.

Finance answer checklist

Mini Glossary

• Normalized earnings: Earnings adjusted for unusual or non-recurring items.
• Sensitivity analysis: Testing how a decision changes when a key assumption changes.
• Working capital: Current operating assets and liabilities, especially receivables, inventory, and payables.
• Refinancing risk: The risk that financing cannot be renewed on acceptable terms when needed.

Related CPA Canada routes

• CPA Canada Core 2
• CPA Canada Performance Management
• CPA Canada CFE Day 2
• U.S. CPA BAR

In this section

• CPA Canada Finance Cheat Sheet
  Review CPA Canada Finance reminders for valuation, capital budgeting, financing, working capital, risk, sensitivity analysis, and professional recommendations.