IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1211:

  Hi-Tech, Inc. has determined that it can minimize its weighted average cost of capital (WACC) by using a debt-equity ratio of 213. If the firm's cost of debt is 9% before taxes, me cost of equity is estimated to be 12% before taxes, and the tax rate is 40%. what is the firm's WACC?

  A. 6. 48%
  B. 7. 92%
  C. 9.36%
  D. 1080%
  C. 9.36%

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  Explanation

• Question 1212:

  Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the

  A. Gross margin per unit for each additional unit sold.
  B. Contribution margin per unit for each additional unit sold.
  C. Fixed costs per unit for each additional unit sold.
  D. Variable costs per unit for each additional unit sold.
  B. Contribution margin per unit for each additional unit sold.

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  Explanation

  At the breakeven point, total revenue equals the fixed cost plus the variable cost. Beyond the BEP, each unit sale will increase operating income by the unit contribution margin (unit sales price--unit variable cost) because fixed cost will already have been recovered.

• Question 1213:

  Franklin Inc. is a medium-size manufacturer of toys that makes 25% of its sales to Mega Company, a major national discount retailing firm. Mega will be requiring Franklin and other suppliers to use Electronic Data Interchange (EDI) for inventory replenishment and trade payment transactions as opposed to the paper-based systems previously used. Franklin would consider all of the following to be advantages of using EDI in its dealings with Mega except

  A. Access to Megan's inventory balances of Franklin's products.
  B. Better status tracking of deliveries and payments.
  C. Compatibility with Franklin's other procedures and systems.
  D. Reduction in the payment float.
  C. Compatibility with Franklin's other procedures and systems.

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  Explanation

  Electronic data interchange is the electronic transfer of documents between businesses. EDI was developed to enhance just-in-time (JIT) inventory management. Advantages include speed, reduction of clerical errors, and elimination of repetitive clerical tasks and their costs. Improved business relationships result because of the mutual benefits conferred by EDI. Accordingly, some organizations require EDI. However, EDI entails the exchange of common business data converted into standard message formats. Thus, two crucial requirements are that the participants agree on transaction formats and that translation software be developed to convert messages into a form understandable by other companies. Accordingly, establishing compatibility with Megan's procedures and systems will require Franklin to resolve issues regarding compete ability with its other procedures and systems.

• Question 1214:

  The Dickens Corporation is considering the acquisition of a new machine at a cost of $180,000. Transporting the machine to Dickins' plant will cost $1 2. 000. Installing the machine will cost an additional $18,000. It has a 10-year life and is expected to have a salvage value of $10,000. Furthermore, the machine is expected to produce 4. 000 units per year with a selling price of $500 and combined direct materials and direct labor costs of $450 per unit. Federal tax regulations permit machines of this ripe to be depreciated using the straight-line method over 5 years with no estimated salvage value. Dickens has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Dickens should use in a capital budgeting analysis?

  A. $(170,000)
  B. $(180.000)
  C. $(192,000)
  D. $(210,000)
  D. $(210,000)

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  Explanation

  Delivery and installation costs are essential to preparing the machine for its intended use. Thus the company must initially pay $2 10.000 for the machine, consisting of the invoice price of $180,000. the delivery costs of $1 2,000, and the $18,000 of installation costs.

• Question 1215:

  Which security is most often held as a substitute for cash?

  A. Treasury bills.
  B. Common stock.
  C. Gold.
  D. Aar corporate bonds.
  A. Treasury bills.

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  Explanation

  A treasury bill is a short-term U.S. government obligation that is sold at a di count from its face value. A treasury bill is highly liquid and nearly risk-free, and it is often held as a substitute for cash.

• Question 1216:

  Political risk may be reduced by

  A. Entering into a joint venture with another foreign company.
  B. Making foreign operations dependent on the domestic parentfortechnology, markets, and supplies.
  C. Refusing to pay higher wages and higher taxes.
  D. Financing with capital from a foreign country.
  B. Making foreign operations dependent on the domestic parentfortechnology, markets, and supplies.

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  Explanation

  Political risk is the risk that a foreign government may act in a way that wig II reduce the value of the company's investment. Political risk may be reduced by making foreign operations dependent on the domestic parent for technology, markets, and supplies.

• Question 1217:

  which of the following is not an assumption that is made when assuming rationality on the part of the company?

  A. The company chooses the decision that results in the maximum economic payoff.
  B. The criteria and alternatives can be ranked according to their importance.
  C. Specific decision criteria are constant and the weights assigned to them are stable over time.
  D. The company seeks solutions that minimize conflict.
  D. The company seeks solutions that minimize conflict.

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  Explanation

  According to Robbins, Organizational Behavior (6th ed. Prentice-Hall, 1993), rationally has the same assumptions as the optimizing (outcome maximizing) model for decision making. Rational decision making is fully objective and logical. The model assumes that a single, well-defined goal is to be maximized; that all relevant criteria and feasible options are known; that the criteria and options can be assigned numerical values and ranked; that preferences are constant (criteria and their assigned weights do not change); and that the decision maker will choose the option with the highest rank (the maximum benefits). However, rationality does not require an assumption about the vacancy of conflict.

• Question 1218:

  The benefits of diversification decline to near zero when the number of securities held increases beyond.

  A. 4
  B. 6
  C. 10
  D. 40
  D. 40

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  Explanation

  The benefits of diversification become extremely small when more than 20 to 30 different securities are held. Moreover, commissions and other transaction costs increase with greater diversification.

• Question 1219:

  Which one of the following planning techniques is most likely to be used to determine which business units will receive additional capital and which will be divested?

  A. Competitive strategies model.
  B. Portfolio matrix analysis.
  C. Scenario development.
  D. Situational analysis.
  B. Portfolio matrix analysis.

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  Explanation

  Business units may be treated as elements of an investment portfolio. A portfolio should be efficient in balancing the risk with the rate of return on the portfolio. The expected rate of return of a portfolio is the weighted average of the expected returns of the individual assets in the portfolio. The variability (risk) of a portfolio's return is determined by the correlation of the returns of individual portfolio assets. To the extent the returns are not perfectly positively correlated, variability is decreased. Thus, business units should be selected that increase returns and diversify and reduce risk.

• Question 1220:

  An annual payment in perpetuity of $1,000 per year beginning immediate is said to offer a 12% interest rate. What is its present value?

  A. $8,33333
  B. $9,33333
  C. $10,000
  D. $12,000
  B. $9,33333

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  Explanation

  At 12%. the factor for the present value of an annuity approaches 8.33333. That assumes the first payment is one year away, Since the first payment is today, 1.00 must be added to the above (actor, resulting in 9.33333. Muttipting 933333 times $1,000 results in a present value of $9,333 33.