IMANET IMANET Certifications CMA Questions & Answers

• Question 591:

  Assuming a 360-day year, the current price of a $100 U.S. Treasury bill due in 180 days on a 6% discount basis is

  A. $97.00

  B. $94.00

  C. $100.00

  D. $93.00

  Correct Answer: A

  The 6% discount rate is multiplied times the face amount of the Treasury bill to determine the amount of interest the lender will earn. The interest on this Treasury bill is $3 ($100 x 6% x 5 year), thus the purchase price is $97 ($100--$3).

• Question 592:

  Which of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?

  A. This market provides more funds at lower rates than other methods provide

  B. The borrower avoids the expense of maintaining a compensating balance with a commercial bank.

  C. There are no restrictions as to the type of corporation that can enter into this market.

  D. This market provides a broad distribution for borrowing.

  Correct Answer: C

  Commercial paper is a short-term, unsecured note payable issued in large denominations by major companies with excellent credit ratings. Maturities usually do not exceed 270 days. Commercial paper is a lower cost source of funds than bank loans, and no compensating balance are required. Commercial paper provides a broad and efficient distribution of debt, and costly financing arrangements are avoided. The market is not open to all companies because only major corporations with high credit ratings can participate.

• Question 593:

  Which one of the following factors might cause a firm to increase the debt in TTS financial structure?

  A. An increase in the corporate income tax rate.

  B. Increased economic uncertainty

  C. An increase in the federal funds rate.

  D. An increase in the price-earnings ratio.

  Correct Answer: A

  An increase in the corporate income tax rate might encourage a compare to borrow because interest on debt is tax deducible, `4iereas dividends are not Accordingly, an increase in the tax rate means that the after-tax cost of debt capital will decrease, Given equal interest rates, a firm with a high tax rate 4lI have a lower after- tax cost of debt capital than a firm with a low tax rate.

• Question 594:

  An of the following are adjustments/preference items to corporate taxable income in calculating alternative minimum taxable income except

  A. Accelerated depreciation over straight line on most real property placed into service prior to 1987.

  B. Mining exploration and development costs

  C. A charitable contribution of appreciated property,

  D. Sales commission earned in the current year but paid in the following year

  Correct Answer: D

  Taxable income is adjusted to maven at attentive minimum taxable income, Some of the common adjustments include gains or losses from long-term contracts, gains on installment sales of real property. mining exploration and development costs, charitable contributions of appreciated property, accelerated depreciation, the accumulated current earnings adjustment, and tax-exempt interest on private activity bonds issued after August 7, 1986 A sales commission accrued in the current year but paid in the following year is not an example of an AMT adjustment.

• Question 595:

  The annual tax depreciation sense on an asset reduces income taxes by an amount equal to

  A. The firm's average tax rate times the depreciation amount.

  B. One minus the firm's average tax rate trine The depreciator amount.

  C. The forms marginal tax rate times the depreciation amount.

  D. One minus the firm's marginal tax rate times the depreciation amount

  Correct Answer: C

  A depreciation deduction will reduce a firm's tax by the amount of the deduction flumes the 1rnarginal tax rate A dollar deducted is offset against the firm's last (marginal) dollar of income

• Question 596:

  None of the following items are deductible in calculating taxable income except A. Estimated liabilities for product warranties expected to be incurred in the future

  B. Dividends on common stock declared but not payable until next year.

  C. Bonus accrued but not paid by the end of the year to a cash-basis 90% shareholder

  D. Vacation pay accrued on an employee-by-employee basis.

  Correct Answer: D

  Sec.162(a) states that a deduction is allowed for the ordinary and necessary expenses incurred during the year in any trade or business. A corporation may therefore deduct a reasonable amount for compensation Accrued vacation pay is a form of compensation that results in an allowable deduction for federal income tax purposes

• Question 597:

  Shelf registration of a security is a procedure affixing a front

  A. Register an issue pen on its securities for a specified penned of time.

  B. Control both the issue price and the secondary market price of its securities by registering these prices for a specified period of time.

  C. Register a secant for a specified period of time and then sell the securities on a piecemeal basis

  D. Freeze the market price of its new issues of securities for a specified penned of time,

  Correct Answer: C

  SEC Rule 415 allows corporations to file registration statements covering a stipulated amount of securities that may be issued over the 2-year effective penned of the statement The securities are placed on the shelf and issued at an opportune moment without the necessity of tiling a new registration statement, observing a 20-day waiting period, or prepping a new prospectus The issuer is required only to provide updating amendments or to refer investors to quarter and annual statements tiled with the SEC. Shelf registration is most advantageous to large corporations that frequent offer securities to the pubic.

• Question 598:

  Gait Cost Magnetic Croatian (GCMC) is negotiating an intermediate-term loan to tenancy a jilt project with another comparer GCMC intends k sell its share of nature to its partner after 6 years. The lending bank has therefore agreed to structure the loan with a bacon payment at that time The amount of the loan is $100,000 GCMC will make level quarterly payments at an annual rate of 8%. Because the loan is to be only partially amortized, the payments are based on a full amortization life of 10 years Which one of the following statements in regard to this loan is true? (Round your answer to the nearest dollar.)

  A. The quarterly payment is $3,726.

  B. The quarterly payment is $5.288.

  C. The balloon payment is $12,107.

  D. The balloon payment is $49,636

  Correct Answer: D

• Question 599:

  The characteristics of Venture capital include all of the following except

  A. Initial pinnate placement for the majority of issues

  B. A minimum holding period of 5 years for new securities

  C. The use of common stock for most placements.

  D. A lack of humidity for a period of time.

  Correct Answer: B

  The concept of venture (risk) capital appestat new enterprises that might not be able to obtain funds in the usual capital markets because of the friskiness Of new products, Such companies somberness toy to place `scantiest. normality common stock, with venture captive firms. These are normally private percents of the securities and thus not subject to SEC regulator. The venture capitalists risk low liquidity for their investments until the young `corporation becomes successful. The payoff may be substantial if the company does succeed There is no minimum holding period for venture capital investments,

• Question 600:

  A major use of warrants in financing is to

  A. Lower the cost of debt

  B. Avoid dilution of earnings per share.

  C. Maintain managerial control.

  D. Permit the buy-back of bonds before maturity

  Correct Answer: A

  Warrants are long-term options that give holders the ghetto buy common stock in the future at a specific price. If the market price goes up, the holders of warrants will exercise their rights to buy stock at the special price. If the market price does not exceed the exercise price, the warrants will lapse. Issuers of debt sometimes attach stock purchase warrants to debt instruments as an inducement to investors. The investor then has the specialty of fixed- return debt plus the possibility for large gains if stock prices increase significantly, W warrants are attached, debt can sell at an interest rate slightly lower than the market rate