IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1061:

  Each share of nonparticipating, 8%, cumulative preferred stock in a company that meets its dividend obligations has all of the following characteristics except

  A. Voting rights in corporate elections.
  B. Dividend payments that are not tax deductible by the company.
  C. No principal repayments
  D. A superior claim to common stock equity in the case of liquidation.
  A. Voting rights in corporate elections.

  ---

  Explanation

  Dividends on cumulative preferred stock accrue until declared; that is, the book value of the preferred stock increases by the amount of any undeclared dividends. Participating preferred stock participates with common shareholders in excess earnings of the company. In other words, 8% participating preferred stock might pay a dividend each year greater than 8% when the corporation is extremely profitable. Therefore, nonparticipating preferred stock will receive no more than is stated on the face of the stock. Preferred shareholders rarely have voting rights. Voting rights are exchanged for preferences regarding dividends and liquidation of assets.

• Question 1062:

  The firm's marginal cost of capital

  A. Should be the same as the firm's rate of return on equity.
  B. Is unaffected by the firms capital structure.
  C. Is inverse' related to the firm's required rate of return used in capital budgeting.
  D. Is a weighted average of the investors' required returns on debt and equity
  D. Is a weighted average of the investors' required returns on debt and equity

  ---

  Explanation

  The marginal cost of capital is the cost of the next dollar of capital. The marginal cost continually increases because the lower cost sources of funds are used first. The marginal cost represents a weighted average of 1both debt and equity capital.

• Question 1063:

  The evaluation technique of linear programming involves all of the following except

  A. Linear equations.
  B. Scarce resources.
  C. Accurate results.
  D. Objective function.
  C. Accurate results.

  ---

  Explanation

  Linear programming is a tool for allocating scarce resources in the presence of resource I constraints. The problem must be described by a system of linear equations. An objective function (usually cost or revenue) is maximized or minimized subject to constraint equations. The simultaneous solution to the system of `an equation maximizes profit (or minimizes cost). This description is seldom strictly accurate but provides useful approximations.

• Question 1064:

  If the interest rate is to be determined in a given transaction in which the present value and future value are known, which formula would be used?

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  A. Option A

  ---

  Explanation

  The basic formula. PV x (1 + j)fl FVn. can be used to solve any time value of money problem that involves a single future cash flow (FVn). To determine the interest rate, the formula is transformed to the relationship (1 + j)fl FV1PV by dividing each side of the basic formula by PV. Since the TVMF is equal to (1 + one can then look in the future value of $1 table for n periods to find that interest rate for which the table's TVMF is equal to the TVMF calculated from the formula

• Question 1065:

  Which one of the following is a spontaneous source of financing?

  A. Notes payable.
  B. Long-term debt.
  C. Prepaid interest
  D. Trade credit.
  D. Trade credit.

  ---

  Explanation

  Trade credit is a spontaneous source of financing because it arises automatically as part ofi1 purchase transaction

• Question 1066:

  Certain phases of the planning process should be formalized for all of the following reasons expect that

  A. Informal plans and goals lack the necessary precision, understanding, and consistency.
  B. Formal plans can act as a constraint on the decision-making freedom of managers and supervisors
  C. Formalization requires the establishment and observance of deadlines for decision making and planning
  D. Formalization provides a logical basis for rational flexibility in planning
  B. Formal plans can act as a constraint on the decision-making freedom of managers and supervisors

  ---

  Explanation

  A formal plan is a prescription for organizational behavior and a set of goals. Management decision making is therefore necessarily constrained by the limitations established I the plan.

• Question 1067:

  Barney Corporation sells sets of encyclopedias. Barney sold 4,000 sets last year at $250 a set if the variable cost per set was $175 and the fixed costs for Barney were $100000. What is Barney's degree of operating leverage (DOL)?

  A. 0.67
  B. 0.75
  C. 1.5
  D. 3. 0
  C. 1.5

  ---

  Explanation

  The degree of operating leverage (DOL) can be calculated from the formula [Q(P - V)] [Q(P V) - F], if 0 is the number of units sold, P is the unit selling price. V is the unit variable cost, and F is the fixed cost. Thus, the DOL is {(4. 000 x $75) [(4,000 x $75) 100,000]}

• Question 1068:

  The return on tow stocks can be correlated in values expect those that are

  A. Positive
  B. Negative
  C. Neutral
  D. Skewed
  D. Skewed

  ---

  Explanation

  The correlation(r) measures the degree to which any two variables are related. It ranges from -1.0 to 1.0. Perfect positive correlation (1.0) means that the two variables always move together. Perfect negative correlation (-1.0) means that the two variables always move inversely to one another. A neutral correlation, or no correlation, is 0.0 Skewed is a nonsense concept in this context.

• Question 1069:

  In an insourcing vs. outsourcing decision1 the decision process favors the use of total costs rather than unit costs. The reason is that

  A. Unit cost may be calculated based on different volumes.
  B. Irrelevant costs may be included in the unit amounts.
  C. Allocated costs may be included in the unit amounts.
  D. All of the answers are correct.
  D. All of the answers are correct.

  ---

  Explanation

  Unit costs should be used with extreme care. In each situation, they may be calculated based on a different volume level from that anticipated, so comparability may be lost. Irrelevant costs included in the unit cost should be disregarded; only relevant costs should be included in the analysis. Allocated costs should also be ignored, and only the relevant costs that will change with the option chosen should be considered.

• Question 1070:

  If inventories are expected to change, the type of costing that provides the best information for breakeven analysis is

  A. Job order costing.
  B. Variable (direct) costing.
  C. Joint costing.
  D. Absorption (full) costing.
  B. Variable (direct) costing.

  ---

  Explanation

  A variable (direct) costing system is best for providing the information needed for CVP analysis because both techniques separate the fixed costs from variable costs. CVP analysis calculates a variable cost per unit and deducts it from unit sales price to determine the unit contribution margin. The total contribution margin from a given level of unit sales measures the extent of recovery of fixed costs and the profit earned. Direct costing is likewise oriented toward determination of the contribution margin because it treats fixed manufacturing overhead as a period, not a product, cost. Thus, it facilitates CVP analysis by isolating variable manufacturing costs.