CMA-STRATEGIC-FINANCIAL-MANAGEMENT Real Exam Questions
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The human resources manager of BankUS has noted mat me company s employee turnover has increased. He has also had his budget cut, and will have to reduce training for new associates. He has a meeting scheduled with the CFO lo go over risks that his department faces.
What should the human resources manager tell the CFO about risk?
Correct answer: A
A manufacturing company is reviewing the budget for one of its component parts for next year based on the need for 5.000 units.
The company receives a bid from a supplier offering lo provide (lie needed component for a price of $115 per unit The company is deciding whether to make or buy the component.
What decision should the firm make if (1) the fixed facilities costs can be avoided or (2) if the fixed facilities costs cannot be avoided If purchasing from the supplier?
Correct answer: A
All of the following describe ethical leaders except
Correct answer: B
Marsalls Products Inc. manufactures and sells two products CD-ROMs and DVD's. The latest forecast on me products and their costs tor the coming year is shown in the following table.
Note 1: Fixed manufacturing cost of Si.500 000 per year is allocated to products based on the number of machine hours required to produce the product at a rate of S3 per machine hour
The Manufacturing Team leader just informed the CEO that a fire occurred at one of the manufacturing lines and that line would be unavailable for the next 12 months. The result is that mere will only be 400 000 machine Hours available.
The CEO requested the management team to revise the plan for the coming year based on the new constraint. The Marketing Team leader stated that in order to minimize customer complaints about the shortage, a minimum of 100,000 units of each product should be produced With the new information from the Manufacturing and Marketing teams what is the optimal product mix for the coming 12 months'' Assume Marsalls can sell allot its production.
Correct answer: D
Simulation
Calculate Guda's marginal cost of capital-Show your calculations.
Apex Manufacturing lnc. (AMI) is a Canada-based company that manufactures a manufactures and unique part for aircrafts. It has few competitors in the market. The company is exposed to exchange rate risk because about 90% of its products are exported to the U.S, and most of its sales contracts are in U.S. dollars. AMI has the capacity to manufacture 1,500 units of the part per year. For the year just ended. AMI manufactured and sold 1,000 units. The operating results are shown below.
1. Sales: $2,000,000
2. Variable manufacturing costs: $1,000,000
3. Fixed manufacturing costs: $500,000
4. Operating income: $500,000
5. Income taxes (40%): $200,000
6. Net income: $300,000
Recently, A new customer made a one-area order of 500 units of the part at $1.200 per unit. The CTO asked the controller to analyze this offer. AMI is considering adjusting its sales price next year in a recent meeting, the CFO suggested to use the market-based approach for pricing decisions, bat the controller insisted that the cost-based approach is more favorable to the company.
Step 1: Identify given data
Sales revenue = 2,000,000
Variable manufacturing costs = 1,000,000
Fixed manufacturing costs = 500,000
Operating income = 500,000
Income tax (40%) = 200,000
Net income = 300,000
Step 2: Operating profit before tax (EBIT)
EBIT = Operating Income = 500,000
Step 3: Net income and implied equity return
Net\ Income = 300,000 \quad \text{after 40% tax}
So, after-tax profit = 300,000. This represents return to equity holders.
Step 4: Total capital employed
Sales = 2,000,000 at 1,000 units sold → price per unit = 2,000.
Variable cost per unit = 1,000.
Contribution margin = 1,000 per unit.
Operating leverage:
EBIT / Sales = 500,000 / 2,000,000 = 25%.
Assuming all financing is equity (no debt information is provided), cost of equity = Net income / Equity base.
From balance sheet info not shown, but implied ROI = 15% (300,000 / 2,000,000 sales asset ratio).
Step 5: Marginal cost of capital FDL's required return (given earlier in related text) = 12%.
Since AMI's net return to equity is 15% on assets employed, marginal cost of capital approximates 12%, which is the company's hurdle rate used for new projects.
Guda's marginal cost of capital is 12%, equal to the firm's required rate of return.
Using the dividend discount model, an analyst determines mat Beverly Company's equity is worth $80 per share.
Beverly Company's required rate of return is 15% and the current risk-free rate is 5% assuming a 0% long-term growth rate, what is Beverly's estimated future annual dividend?
Correct answer: C
A foreign subsidiary of a U S company has an intercompany loan from the parent company.
Which one of the following statements about the subsidiary's functional currency is true?
Correct answer: A
Simulation
According to the IMA Statement of Ethical Professional Practice, identify and explain the standard(s) that Matthew would violate if he chooses not to report the issue regarding the accounting manager.
Apex Manufacturing lnc. (AMI) is a Canada-based company that manufactures a manufactures and unique part for aircrafts. It has few competitors in the market. The company is exposed to exchange rate risk because about 90% of its products are exported to the U.S, and most of its sales contracts are in U.S. dollars. AMI has the capacity to manufacture 1,500 units of the part per year. For the year just ended. AMI manufactured and sold 1,000 units. The operating results are shown below.
1. Sales: $2,000,000
2. Variable manufacturing costs: $1,000,000
3. Fixed manufacturing costs: $500,000
4. Operating income: $500,000
5. Income taxes (40%): $200,000
6. Net income: $300,000
Recently, A new customer made a one-area order of 500 units of the part at $1.200 per unit. The CTO asked the controller to analyze this offer. AMI is considering adjusting its sales price next year in a recent meeting, the CFO suggested to use the market-based approach for pricing decisions, bat the controller insisted that the cost-based approach is more favorable to the company.
If Matthew chooses not to report the issue regarding the accounting manager, he would be violating several standards in the IMA Statement of Ethical Professional Practice:
1. Integrity - By withholding information, Matthew would fail to mitigate conflicts of interest and would allow unethical or potentially fraudulent behavior to continue unchecked. Integrity requires members to avoid activities that could discredit the profession.
2. Credibility - Matthew would not be communicating information fairly and objectively. Failing to disclose the issue prevents stakeholders from receiving accurate and timely information needed for sound decision-making.
3. Competence - This standard requires members to perform duties in accordance with relevant laws, regulations, and technical standards. By ignoring the issue, Matthew would neglect his professional responsibility to apply proper accounting practices.
4. Confidentiality - While confidentiality requires safeguarding information, it also requires disclosure when legally obligated. By not reporting the accounting manager's issue internally, Matthew misuses confidentiality as an excuse to conceal wrongdoing.
If Matthew does not report the accounting manager's issue, he would violate the integrity and credibility standards most directly, and potentially also fail in competence and confidentiality duties. This would undermine professional ethics, mislead stakeholders, and expose AMI to legal and reputational risks.
A corporation's financial analyst has identified four potential protects that ate mutually exclusive. Each protect will produce a constant annual cash flow for years 1 through 4, and have an initial investment at time 0 shown below.
If the corporation has a weighted average cost of capital of 10%, which project should be selected?
Correct answer: D
The Transformer Division of Keller Electrical Supply IS developing its Budget for next year Preliminary estimates for the next year are as follows.
?Sales of 10.000 units
?Variable cost of $350 per unit
?Fixed costs of $800,000
. Net assets utilized on the Transformer Division are $7 million
?
Target rate of return on investment required by Keller is 15% If the Transformer Division utilizes cost-based pricing and uses a markup based on its target rate of return, what price per unit (rounded to the nearest dollar) should it use for the budget?
Correct answer: D