IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1091:

  Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $80,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in savings annually. To achieve this goal, the minimum annual rent on the facility must be

  A. $10,000
  B. $40,000
  C. $70,000
  D. $190,000
  D. $190,000

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  Explanation

  Without regard to rental of idle production capacity, the company will lose $3 per unit ($33 purchase price -- $30 relevant cost) by purchasing the plugs. The total annual loss will be $90,000 (30,000 units x $3). Consequently, to achieve the targeted savings, the minimum annual rent must be $190,000 ($90,000 loss from purchasing + $100,000 targeted savings).

• Question 1092:

  The U.S. dollar has a free-floating exchange rate. If the dollar falls considerably in relation to other currencies over the next 2 years, the

  A. Capital account in the U.S. balance of payments will be neither in a deficit nor in a surplus because of the floating exchange rates.
  B. Fall in the dollar's value will not be expected to have any effect on the U.S. trade balance.
  C. Cheaper dollar will help U.S. importers of foreign goods.
  D. Cheaper dollar will help U.S. importers of domestically produces goods.
  D. Cheaper dollar will help U.S. importers of domestically produces goods.

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  Explanation

  The decline in the value of the dollar relative to other currencies will lower the price of U.S. goods to foreign consumers. Thus, exporters of domestically produced goods will benefit. The low value of the dollar will decrease imports by making foreign more expensive.

• Question 1093:

  Troy Toys is a retailer operating in several cities. The individual store managers deposit daily collections at a local bank in a non-interest bearing checking account. Twice per week1 the local bank issues a depository transfer check (DTC)to the central bank at headquarters. The controller of the company is considering using a wire transfer instead. The additional cost of each transfer would be $25; collections would be accelerated by 2 days; and the annual interest rate paid by the central bank is 7. 2%(0.02% per day). At what amount of dollars transferred would it be economically feasible to use a wire transfer instead of the DTC? Assume a 360-day year.

  A. It would never be economically feasible.
  B. $125000 or above.
  C. Any amount greater than $173.
  D. Any amount greater than $62,500.
  D. Any amount greater than $62,500.

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  Explanation

  Given a $25 fee and an interest rate of 0.02% per day for2 days, the breakeven amount is $62,500 [$25 transfer fee + (2 x .02% interest rate)]. Thus, the interest earned on a transfer of any amount greater than $62,500 would exceed the $25 fee.

• Question 1094:

  Which of the following is not characteristic of a mature industry environment?

  A. Consolidation.
  B. Competitive interdependence.
  C. Palling demand.
  D. Strategic focus on deterring entry of new competitors into the marketplace.
  C. Palling demand.

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  Explanation

  Falling demand is characteristic of declining industries; These industries have sustained a Permanent decrease in unit sales over the long run.

• Question 1095:

  A firm is considering a capital project for which the following information is available:

  An existing piece of equipment that would be disposed of to make room for new equipment has a historical cost of $370,000. It has a salvage value of $10000 and has been depreciated on a straight-line basis for 16 of the estimated 18 years

  of its useful life. The new equipment has a cost of $500,000 and the firm expects it will have to devote $20,000 in cash and $24,000 in accounts receivable to the new project. The firm's effective tax rate is 40%. The required net initial

  irwestrnent in the new project is?

  A. $544,000
  B. $534,000
  C. $518,000
  D. $498,000
  C. $518,000

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  Explanation

• Question 1096:

  If a firm purchases raw materials from its supplier on a 2/10, net 40, cash discount basis, the equivalent annual interest rate (using a 360-day year) of forgoing the cash discount and making payment on the 40th day is

  A. 2%
  B. 18.36%
  C. 24. 49%
  D. 36. 72%
  C. 24. 49%

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  Explanation

• Question 1097:

  The accountant of Ronier, Inc. has prepared an analysis of a proposed capital project using discounted cash flow techniques. One manager has questioned the accuracy of the results because the discount factors employed in the analysis have assumed the cash flows occurred at the end of the year when the cash flows actually occurred uniformly throughout each year. The net present value calculated by the accountant will

  A. Not be in error.
  B. Be slightly overstated.
  C. Be unusable for actual decision making.
  D. Be slightly understated but usable.
  D. Be slightly understated but usable.

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  Explanation

  The effect of assuming cash flows occur at the end of the year simply understates the present values of the future cash flows; in realist', they probably occur on the average at mid-year.

• Question 1098:

  The treasury analyst for Garth Manufacturing has estimated the cash flows for the first half of next year (ignoring any short-term borrowings) as follows:

  

  Garth has a line of creditor unto $4 million on which it pays interest monthly ate rate of 1% of the amount utilized. Garth is expected to have a cash balance of $2 million on January 1 and no amount utilized on its line of credit. Assuming all cash flows occur at the end of the month, approximately how much will Garth pay in interest during the first half of the year?

  A. $O
  B. $61,000
  C. $80,000
  D. $132,000
  B. $61,000

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  Explanation

  The sum of the beginning balance and inflows exceeds the outflows for the first 2 months. At the end of March, however1 Garth must use $2,000,000 of its line of credit ($2,000,000 beginning balance + $6,000,000 inflows--$10,000,000 outflows). Thus, interest for April is $20,000 ($2,000,000 x 1%). The net cash outflow for April (ignoring short-term borrowings) is $1,000,000 of an additional $1,000,000 of the line of credit. However, the $20,000 of interest for April must also be paid, so the amount of the line of credit used in May is $3,020,000 ($2,000,000 + $1,000,000 + $20,000). Interest for May is therefore $30,200 ($3,020,000 x 1%). Given the net cash inflow for May of $2,000,000 (again ignoring short-term borrowings) and the borrowing of $30,200 to pay the interest for May, the amount of the line of credit used in June is $1,050,200. Interest in June is $10,502 ($1,050,200 x 1%), and total interest is $60,702 ($20,000 + $30,200 + $10,502). Consequently, the closest answer is $61, 000.

• Question 1099:

  The technique that recognizes the time value of money by discounting the after-tax cash flows for a project over its life to time period zero using the company's minimum desired rate of return is called the

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

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  Explanation

  The net present value method discounts future cash flows to the present value using some arbitrary rate of return, which is presumably the firm's cost of capital. The initial cost of the project is then deducted from the present value. If the present value of the future cash flows exceeds the cost, the investment is considered to be acceptable.

• Question 1100:

  The Herb Salter Corporation is considering a plant expansion that will increase its sales and net income. The following data represent management's estimate of the impact the proposal will have on the company:

  

  The effect of the plant expansion on Salter's networking capital will be a (n)

  A. Increase of $240,000
  B. Decrease of $10,000
  C. Increase of $230,000
  D. Increase of $10,000
  B. Decrease of $10,000

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  Explanation