IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1141:

  Claus on, Inc. grants credit terms of 1/15. Net 30 and projects gross sales for next year of $2,000,000. The credit manager estimates that 40% of their customers pay on the discount date1 40% on the net due date, and 20% pay 15 days after the net due date. Assuming uniform sales and a 360-day year1 what is the projected days' sales outstanding (rounded to the nearest whole day)?

  A. 20 days.
  B. 24 days.
  C. 27 days.
  D. 30 days.
  C. 27 days.

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  Explanation

  Given that 40% of sales will be collected on the 15th day, 40% on the 30th day, and 20% on the 45th day, the days' sales outstanding can be determined by weighting the collection period for each group of `receivables by its collection percentage. Hence, the projected days' sales outstanding equal 27 days [(40% x 15) ?(40% x 30) + (20% x 45)].

• Question 1142:

  While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. The manager has asked the auditor for advice about increasing advertising of various products. During which stage of the life cycle would it be appropriate to advertise that the company's products is the lowest price and best quality of all competitors?

  A. Introduction stage.
  B. Growth stage.
  C. Maturity stage.
  D. Decline stage.
  C. Maturity stage.

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  Explanation

  The maturity stage is the ideal time for advertising lower price and superior quality because this is the period during a product's life when competition is greatest. Due to the availability of many alternatives or substitutes, a firm has reasons to set itself apart. Because price and quality are both concerns of customers during the maturity stage, it is ideal for the firm to differentiate its product by advertising low prices and higher quality.

• Question 1143:

  If the amount to deposit today to be able to replace an asset at a specified time in the future is to be determined, which formula should be used?

  

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

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  Explanation

• Question 1144:

  The economic order quantity for a product is 500 units. However, new orders require 4 working-days lead time during which 80 units will be used. Given this information, the correct economic order quantity' is

  A. 420 units.
  B. 500 units.
  C. 509 units.
  D. 580 units.
  B. 500 units.

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  Explanation

  The lead times does not affect the EOQ; it just means the order should be placed four days earlier.

• Question 1145:

  AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are vented on one share of 00 Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assume that the value of a share of (Xi Company common stock at the expiration date is either $30 or $45. The difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is

  A. $10.00
  B. $7. 50
  C. $500
  D. $0
  D. $0

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  Explanation

  The stock price at the maturity date is $30, AA Compare' will have a share of stock worth $30 and a put option worth $10 ($40 exercise price -- $30 stock Price). The call option will be worthless Hence, the net payoff is $40 ($30 + $10). 11 the stock price at the maturity date is $45. the share of stock villa be worth $45, the put will be worthless, and the loss on the call will be $5 ($45 -- $40) Thus, the net payoff ll be $40 ($45 -- $5) Consequents the difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is $0 ($40 -- $40) 1The portfolio has the same value at the maturity date regardless of the price of the stock.

• Question 1146:

  Sensitivity analysis, if used with capital projects,

  A. Is used extensively when cash flows are known with certainty.
  B. Measures the change in the discounted cash flows when using the discounted payback method rather than the net present value method.
  C. Is a "what-if" technique that asks how a given outcome will change if the original estimates of the capital budgeting model are changed.
  D. Is a technique used to rank capital expenditure requests.
  C. Is a "what-if" technique that asks how a given outcome will change if the original estimates of the capital budgeting model are changed.

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  Explanation

  After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis, which is a trial-and-error method used to determine the sensitivity of the estimates used. For example, forecasts of many calculated NPVs under various assumptions maybe compared to determine how sensitive the NPV is to changing conditions. Changing the assumptions about a certain variable or group of variables may drastically alter the NPV, suggesting that the risk of the investment may be excessive.

• Question 1147:

  Assume that each day company writes and receives checks totaling $10,000. If it takes 5 days for the checks to clear and be deducted from the company's account, and only 4 days for the deposits to clear, what is the float?

  A. $10,000
  B. R$0
  C. $(10,000)
  D. $50,000
  A. $10,000

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  Explanation

  The float period is the time between when a check is written and when it clears the payer's checking account. Check float results in an interest-free loan to the pay or because of the delay between payment by check and its deduction from the bank account. If checks written require one more day to clear than checks received, the net float equals one dais receipts. The company will have free use of the money for one day. In this case, the amount is $10,000.

• Question 1148:

  Oradell Company sells its single product at a price of $60 per unit and incurs me following variable costs per unit of product

  

  Oradell's annual fixed costs are $880,000. and Oradell is subject to a 30% income tax rate The annual sales revenue required by Oradell Company in order to achieve after- tax net income of $224,000 for the year is

  A. $3,600,000
  B. $3,312,000
  C. $1,656,000
  D. $3,110,400
  A. $3,600,000

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  Explanation

• Question 1149:

  Metrejean Industries is analyzing a capital investment proposal for new equipment to produce a product over the next 8 years. At the end of 8 years, the equipment must be removed from the plant and will have a net caring amount of $0. a tax basis of $150,000. a cost to remove of $80,000. and scrap salvage value of $20,000. Metrejean's effective tax rate is 40%. What is the appropriate enc$-of-life" cash flow related to these items that should be used in the analysis?

  A. $90,000
  B. $54,000
  C. $24,000
  D. $(36,000)
  C. $24,000

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  Explanation

  The tax basis of $150,000 and the $80,000 cost to remove are deductible expenses, but the $20,000 scrap value is an offsetting cash inflow. Thus, the taxable loss is $210,000 ($150,000 + $80,000 --$20,000). At a 40% tax rate, the $210,000 loss will produce a tax savings (inflow) of $84,000. According. the final cash flows will consist of an outflow of $80,000 (cost to remove) and inflows of $20,000 (scrap) and $84,000 (tax savings), a net inflow of $24,000.

• Question 1150:

  A topical firm doing business nationally cannot expect to accelerate its cash inflow by

  A. Establishing multiple collection centers throughout the country.
  B. Employing a lockbox arrangement.
  C. Initiating controls to accelerate the deposit and collection f large checks.
  D. Maintaining compensating balances rather than paying cash for bank services.
  D. Maintaining compensating balances rather than paying cash for bank services.

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  Explanation

  Compensating balances are either (1) an absolute minimum balance or (2) a minimum average balance that bank customers must keep at the bank. These are generally required by the bank to compensate for the cost of services rendered. Maintaining compensating balances will not accelerate a company's cash inflows because less cash will be available even though the amount of cash coming in remains unchanged.