IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1071:

  The Red Company has a revolving line of credit of $300,000 with a one-year maturity. The terms call for a 6% interest rate and a 1(2% commitment fee on the unused portion of the line of credit. The average loan balance during the year was $100,000. The annual cost of this financing arrangement is

  A. $8,000
  B. $6,500
  C. $7,000
  D. $7,500
  C. $7,000

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  Explanation

  The annual cost of Red's financing arrangement can be calculated as follows Cost = (Amount borrowed x Interest rate) + [(Credit limit - Amount borrowed) x Commitment fee] = ($100,000 *6%) + [($300,000 --$100,000) x .05] = $6,000+$1,000 = $7,000

• Question 1072:

  A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X for every 5 units of V (2. 5). Fixed costs are $49.500. The unit contribution margins for X arid V are $2. 50 and $1.20. respectively. Considering the company as a whole, the number of composite units to break even is?

  A. 1.650
  B. 4. 500
  C. 8,250
  D. 22,500
  B. 4. 500

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  Explanation

  The composite breakeven point for a multiproduct firm is computed by dividing total fixed costs by a composite contribution margin Composite contribution margin 2($250) + 5($1 .20) $11 BEP $49,500 + $11 = 4. 500 composite units

• Question 1073:

  Which of the following price adjustment strategies is designed to stabilize production for the selling firm'?

  A. Cash discounts
  B. Quantity discounts.
  C. Functional discounts.
  D. Seasonal discounts
  D. Seasonal discounts

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  Explanation

  Seasonal discounts are designed to smooth production by the selling firm. For example, a ski manufacturer offers seasonal discounts to retailers in the spring and summer to encourage early ordering.

• Question 1074:

  The market value of a share of stock is $50, and the market value of one right prior to the ex-rights date is $2. 00 after the offering is announced but while the stock is still selling rights-on. The offer to the shareholder is that it will take three rights to buy an additional share of stock at a subscription price of $40 per share. If the theoretical value of the stock when it goes ex-rights is $47. 50, then the shareholder

  A. Does not receive any additional benefit from a rights offering
  B. Receives an additional benefit from a rights offering.
  C. Merely receives a return of capital
  D. Should redeem the right and purchase the stock before the ex-rights date
  A. Does not receive any additional benefit from a rights offering

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  Explanation

• Question 1075:

  The most widely used currency in international business today is the

  A. United States dollar
  B. Euro
  C. Japanese yen
  D. Swiss franc
  A. United States dollar

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  Explanation

  The U.S. dollar is the most widely used currency in international markets today. It is considered much more stable than any of the third-world currencies. Thus, many third- world countries rely on the U.S. dollar for foreign trade.

• Question 1076:

  In an organization with empowered work team, organizational policies?

  A. Should define the limits or constraints within which the work team must act if they are to remain self-directing.
  B. Become more important than ever. Without clear rules to follow, empowered work teams are almost certain to make mistakes.
  C. Should be few or none. The work teams should have the freedom to make their own decision.
  D. Should be set by the teams themselves in periodic joint meetings.
  A. Should define the limits or constraints within which the work team must act if they are to remain self-directing.

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  Explanation

  Work teams are not "empowered" to do anything they please. The organization has certain expectations for what is to be accomplished and how the teams are to go about accomplishing these expectations. Once the organization defines its objectives and sets appropriate policies, the work teams are able to make and implement decision within those boundaries. Policies in this context are usually quite broad (e.g. relating to ethical business conduct) but nevertheless important.

• Question 1077:

  The budget that describes the long-term position, goals, and objectives of an entity within its environment is the

  A. Capital budget
  B. Operating budget
  C. Cash management budget.
  D. Strategic budget
  D. Strategic budget

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  Explanation

  Strategic budgeting is a form of long-range planning based on identifying and specifying organizational goals and objectives. The strengths and weaknesses of the organization risk levels are assessed. The influences of environmental factors are forecast to derive the best strategy for reaching the organization's objectives.

• Question 1078:

  Without prejudice to your answers from any other questions, assume that the after-tax cost of debt financing is 10%, the cost of retained earnings is 14%, and the cost of new common stock is 16%. If capital expansion needs to be $7 million for the coming year, what is the after-tax weighted-average cost of capital to FLF Corporation?

  A. 11 14%
  B. 1274%
  C. 13. 6%
  D. 16%
  B. 1274%

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  Explanation

  To maintain a capital structure of 40% debt and 60% equity, the $7 million total must consist of $2. 8 million of debt and $4. 2 million of equity. The equity will consist of $3 million of retained earnings and $1.2 million of new stock. The

  weighted-average cost of the three sources of new capital is determined as follows:

  $3,000000 + $7000,000 x 14% = 6. 00%

  $1,200,000 $7,000,000 x 16% = 214%

  $2,800,000 + $7,000,000 x 10% = 4. 00%

  12. 74%

  The FLF Corporation is preparing to evaluate capital expenditure proposals for the coming year. Because the firm employs discounted cash flow methods, the cost of capital for the firm must be estimated. The following information for FLF

  Corporation is provided:

• Question 1079:

  Zero-based budgeting force managers to?

  A. Estimate a product's revenues and expenses over its expected life cycle.
  B. Prepare a budget based on historical costs.
  C. Formulate a budget by objective rather than function.
  D. Justify all expenditures at the beginning of every budget period.
  D. Justify all expenditures at the beginning of every budget period.

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  Explanation

  Zero-based budget is a planning process in which each manager must justify his/her department's full budget for each period. The purpose is to encourage periodic reexamination of all costs in the hope that some can be reduced or eliminated.

• Question 1080:

  The technique that measures the number of years required for the after-tax cash flows to recover the initial investment in a project is called the

  A. Net present value method.
  B. Payback method.
  C. Profitability index method.
  D. Accounting rate of return method.
  B. Payback method.

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  Explanation

  The usual payback formula divides the initial investment by the constant net annual cash The payback method is unsophisticated in that it ignores the time value of money, but it is widely used because of its simplicity and emphasis on recovery of the initial investment.