IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1161:

  A manufacturing firm wants to obtain a short-term loan and has approached several lending institutions. All of the potential lenders are offering the same nominal interest rate but the terms of the loans vary. Which of the following combinations of loan terms will be most attractive for the borrowing firm?

  A. Simple interest, no compensating balance.
  B. Discount interest, no compensating balance.
  C. Simple interest, 20% compensating balance required.
  D. Discount interest, 20% compensating balance required.
  A. Simple interest, no compensating balance.

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  Explanation

  The most desirable set of terms are those that result in the lowest cost of borrowing. Discount interest results in a higher effective borrowing cost than simple interest because the bank deducts interest in advance so the borrower receives less than the face value of the loan. A compensating balance results in a higher effective borrowing cost because the compensating balance is an amount of cash that the firm is unable to use. The cheapest terms, given that all options have the same nominal interest rate, will be simple interest with no compensating balance.

• Question 1162:

  Which of the following os not a goal of materials requirements planning?

  A. Right part
  B. Right quantity
  C. Right customer
  D. Right time
  C. Right customer

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  Explanation

  The three basic goals of MRP are the right part in the right quantity at the right time.

• Question 1163:

  A large firm that seeks specialization advantages by focusing marketing efforts on a sub segment of a marketing segment is engaged in

  A. Local marketing.
  B. Niche marketing.
  C. Mass marketing.
  D. Individual customer marketing.
  B. Niche marketing.

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  Explanation

  Niche marketing is a specialized strategy that directs marketing efforts toward customers in a market segment who want a unique set of benefits. Niche marketing typically appeals to smaller firms with limited resources, but larger firms also engage in niche marketing. It is attractive to these firms due to its cost effectiveness, the result of focusing marketing funds on a targeted group. Niche customers have unique wants and will pay higher prices for their satisfaction. Moreover, an ideal niche attracts little if any competition, has growth and profit potential, and confers production and marketing advantages that derive from specialization (e.g., knowledge of customers). The Internet is especially conducive to niche (and microfiche) marketing because websites may be established cheaply.

• Question 1164:

  Using a 380-day year, what is the opportunity cost to a buyer of not accepting terms 3/10, net 45?

  A. 55. 67%
  B. 31.81%
  C. 22. 27%
  D. 101.73%
  B. 31.81%

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  Explanation

  Payments should be made within discount periods if the return is more than the firm's cost of capital. With terms of 3/10, net45; the buyer is earning a 3% savings for paying on the tenth day, or 35 days earlier than would otherwise be required. For example, on a $1,000 invoice, the payment would be only $970. The $30 savings is comparable to interest earned on a $970 loan to the vendor (the payment is not due for another 35 days). The interest rate on this hypothetical loan is 3. 09278% ($30 - $970). That return is for a 35-day period. Annualizing the return requires determining the number of 35-day periods in a year. Multiplying the return for 35 days times the periods in a year results in an annual rate of return of about 31.81% [3. 09276% x (360 days ?35 days)].

• Question 1165:

  Stuffed Animals, Inc. has decided to focus strictly on producing and selling one type of teddy bear. For the upcoming year, Stuffed Animals, Inc. hopes to make a 25% profit on sales fixed costs are set at $51,000. and variable costs are $9.50 per unit. If teddy bears are sold at $15 each, how many bears must be sold to meet the profit goal?

  A. 5. 514
  B. 9,273
  C. 13,600
  D. 29,143
  D. 29,143

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  Explanation

• Question 1166:

  Osgood Products has announced that it plans to finance future investments so that the firm will achieve an optimum capital structure. Which one of the following corporate objectives is consistent with this announcement?

  A. Maximize earnings per share.
  B. Minimize the cost of debt.
  C. Maximize the net worth of the firm.
  D. Minimize the cost of equity.
  C. Maximize the net worth of the firm.

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  Explanation

  Financial structure is the composition of the financing sources of the assets of a firm. Traditionally, the financial structure consists of current liabilities, Long-term debt, retained earnings, and stock For most firms, the optimum structure includes a combination of debt and equity. Debt is cheaper than equity, but excessive use of debt increases the firm's risk and drives up the weighted-average cost of capital.

• Question 1167:

  Rex Company is considering an investment in a new plant which will entail an immediate capital expenditure of $4,000,000. The plant is to be depreciated on a straight-line basis over 10 years to zero salvage value. Operating income (before depreciation and taxes) is expected to be $800,000 per year over the 10-year life of the plant. The opportunity cost of capital is 14%. Assume that there are no taxes.What is the NPV for the investment?

  A. $172,800
  B. $(1,913,600)
  C. $520,000
  D. $362,400
  A. $172,800

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  Explanation

  The NPV is the difference between the present value of the estimated net cash inflows and the present value of the net cash outflows. The present value of the net cash inflows discounted at 14% is $4,172,800 [$800,000(5. 216)]. Therefore, the NPV of the investment is $172,800 ($4,172,800 --$4,000,000).

• Question 1168:

  A firm often factors its accounts receivable. Its finance company requires a 6% reserve and charges a 1.4% commission on the amount of the receivables. The remaining amount to be advanced is further reduced by an annual interest charge of 15%. What proceeds (rounded to the nearest dollar) will the firm receive from the finance company at the time a $100,000 account due in 60 days is factored?

  A. $92,600
  B. $96,135
  C. $90,285
  D. $85,000
  C. $90,285

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  Explanation

  The factor will withhold $6,000 ($100000 x 6%) as a reserve against returns and allowances and $1,400 ($100,000 x 1.4%) as a commission. The remaining $92,600 will be reduced by interest at the rate of 15% annually. The interest charge should be $2,315, assuming a 360-day year [($92,600 x .15) x (60-day payment period ?360 days)]. The proceeds to be received by the seller equal $90,285 ($92,600 - $2,315)

• Question 1169:

  Russell1 Inc. is evaluating four independent investment proposals. The expected returns and standard deviations for each of these proposals are presented below.

  

  Which one of the investment proposals has the least relative level of risk?

  A. Investment I.
  B. Investment II.
  C. Investment Ill.
  D. Investment IV.
  C. Investment Ill.

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  Explanation

• Question 1170:

  One reason to outsource is so a firm can focus on its

  A. Customers
  B. Suppliers
  C. Undifferentiated activities
  D. Core competencies

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  Explanation

  Firms may gain a competitive advantage by outsouricing those activities which can be performed more efficiently,and thus at lower cost,by outside providers.doing this allow the company to expend its effort on those activities which it performs comparatively well,referred to as its core competencies.