IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1201:

  Policies and procedures provide guidance to management and employees. Would policies and procedures normally be found for the senior management of a multinational organization?

  A. Yes, all policies and procedures are developed by senior management.
  B. No, senior management develops policies and procedures for lower levels only.
  C. Yes, policies and procedures are used throughout an organization's ranks.
  D. No, only middle managers and below develop and use policies and procedures.
  C. Yes, policies and procedures are used throughout an organization's ranks.

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  Explanation

  Research has shown that policies and procedures are referred to by all levels of management on an as-needed basis.

• Question 1202:

  Stars Company has current assets of $400,000 and current liabilities of $300,000. Stars could increase its networking capital by the

  A. Prepayment of $50,000 of next year's rent.
  B. Refinancing of $50,000 of short-term debt with long-term debt.
  C. Acquisition of land valued at $50,000 through the issuance of common stock.
  D. Purchase of $50000 of trading securities for cash.
  B. Refinancing of $50,000 of short-term debt with long-term debt.

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  Explanation

  Networking capital is defined as the excess of current assets over current liabilities. Refinancing short-term debt with long-term debt decreases current liabilities with no effect on current assets, resulting 11in an increase in working capital.

• Question 1203:

  The after-tax cost of the common stock proposed in Rogers' first financing alternative would be

  A. 16. 00%
  B. 16. 53%
  C. 16. 60%
  D. 17. 16%
  D. 17. 16%

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  Explanation

• Question 1204:

  Which of the following is an example of the market-oriented definition of a business?

  A. We make air conditioners and furnaces
  B. We supply energy
  C. We produce movies
  D. We sell men's shirts and pants
  B. We supply energy

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  Explanation

  Businesses should be defined in market terms, that is, in terms of needs and customer groups. Moreover , a distinction should be made between a target market definition and a strategic market definition. For example, a target market for a railroad might be freight hauling, but a strategic market might be transportation of any goods and people. Accordingly, starting that a business supplies energy is market-oriented definition as opposed to the product-oriented definition.

• Question 1205:

  A firm that moves from not exporting on a regular basis to establishing plants in foreign countries has

  A. Globalize
  B. Nationalized
  C. Glocalized
  D. Internationalized
  D. Internationalized

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  Explanation

  The internationalization process is of crucial interest to nations that wish to encourage local firms to grow and to operate globally. According to Swedish researchers, it involves the following steps:

  (1)

  Lack of regular exports;

  (2)

  export via independent agents with a few markets, with later expansion to more countries;

  (3)

  creation of sales subsidiaries in larger markets; and (4) establishment of plants in foreign countries.

• Question 1206:

  Capital budgeting techniques are least likely to be used in evaluating the

  A. Acquisition of new aircraft by a cargo company
  B. Design and implementation of a major advertising program
  C. Adoption of a new method of allocating nontraceable costs to produce lines
  D. Sale by a conglomerate of a n unprofitable division
  C. Adoption of a new method of allocating nontraceable costs to produce lines

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  Explanation

  Capital budgeting is the process of planning expenditures for investments hat are expected to generate returns over a period of more than one year. Thus, capital budgeting concerns the acquisition or disposal of long-term assets and the financing ramifications of such decisions. The adoption of a new method of allocating nontracble costs to product lines has no effect on a company's cash flows, does not relate to the acquisition of long- term assets , and is not concerned with financing. Hence, capital budgeting is irrelevant to such a decision.

• Question 1207:

  The internal rate of return is A. The breakeven borrowing rate for the project in question.

  B. The yield rate/effective rate of interest quoted on long-term debt and other instruments.

  C. Favorable when it exceeds the hurdle rate.

  D. All of the answers are correct.

  Correct Answer. D
  D

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  Explanation

  The internal rate of return (IRR) is the discount rate at which the present value of the cash flows equals the original investment. Thus, the NPV of the project is zero at the IRR. The IRR is also the maximum borrowing cost the firm could afford to pay for a specific project. The IRR is similar to the yield rate/effective rate quoted in the business media.

• Question 1208:

  The equity section of Smith Corporation's Statement of Financial Position is presented below.

  

  The book value per share of Smith Corporation's common stock is

  A. $18.50
  B. $5. 00
  C. $14. 00
  D. $100
  A. $18.50

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  Explanation

  The book value per common share equals the net assets (equity) attributable to common shareholders divided by the common shares outstanding, or $18.50 [($10,000,000 common stock + $18,000,000 additional paid-in capital + $9,000,000 RE) ?($10,000,000 ?$5 par)]

• Question 1209:

  Sales promotion

  A. Provides incentives to buy, and advertising provides reasons.
  B. Is directed toward consumers, not the trade.
  C. Objectives with respect to retailers include motivating them to do more prospecting.
  D. Costs have decreased as a percentage of marketing budgets because consumers are less price conscious.
  A. Provides incentives to buy, and advertising provides reasons.

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  Explanation

  Sales promotion provides incentives to buy. Advertising provides reasons. Promotions may be directed toward consumers, distributors and retailers (trade promotion), the firm's sales force, and other businesses. Promotion costs have increased as a percentage of marketing budgets because consumers are more price conscious, brands have proliferated and are less differentiated, distributors and retailers have greater bargaining power, advertising has become less efficient, firms are under greater pressure to increase sales in the near term, and managers are more accepting of (and qualified to use) promotional methods.

• Question 1210:

  A firm's dividend policy may treat dividends either as the residual part of a financing decision or as an active policy strategy. Treating dividends as the residual part of a financing decision assumes that

  A. Earnings should be retained and reinvested as long as profitable projects are available.
  B. Dividends are important to shareholders, and any earnings left over after paying dividends should be invested in high-return assets
  C. Dividend payments should be consistent.
  D. Dividends are relevant to a financing decision.
  A. Earnings should be retained and reinvested as long as profitable projects are available.

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  Explanation

  According to the residual theory of dividends, the amount (residual) of earnings paid as dividends depends on the available investment opportunities and the debt-equity ratio at which cost of capital is minimized. The rational investor should prefer reinvestment of retained earnings when the return exceeds what the investor could earn on investments of equal risk. However, the firm may prefer to pay dividends when investment opportunities are poor and the use of internal equity financing would move the firm away from its ideal capital structure.