IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1231:

  Some managers express the opinion that their "cash management problems are nothing more than inventory problems." They then proceed to use cash management models, such as the EOQ model, to determine the

  A. Credit and collection policies.
  B. Marketable securities level.
  C. Proper relationship between current assets and current liabilities.
  D. Proper blend of marketable securities and cash.
  D. Proper blend of marketable securities and cash.

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  Explanation

  Since cash and inventory are both nonearning assets, in principle they may be treated similarly. The alternative to holding cash, however, is to hold marketable securities that do earn interest or dividends. Thus, a cash management model would determine how much of a firm's liquidly should be held as cash and how much in the 1torm of marketable securities.

• Question 1232:

  Mass marketing relies on

  A. Economies of scope.
  B. Economies of scale.
  C. Share of the customer.
  D. Customer retention.
  B. Economies of scale.

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  Explanation

  Mass marketing groups people into large categories based solely on their demographic traits, e.g.. age, income, gender, or education level. It assumes most people in the same category will react similarly to one marketing message. Mass marketers primarily use mass media (television and print) to reach their targets in large numbers. Moreover, mass marketing relies on economies of scale and a large share of the largest possible market to reduce costs and thereby to lower prices or raise unit profit margins.

• Question 1233:

  In a manufacturing environment, the best short4erm profit maximizing approach would be to

  A. Maximize unit gross profit times the number of units sold.
  B. Minimize variable costs per unit times the number of units produced.
  C. Minimize fixed overhead cost per unit by producing at full capacity.
  D. Maximize contribution per unit times the number of units sold.
  D. Maximize contribution per unit times the number of units sold.

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  Explanation

  In the short run, the best approach is to maximize the unit contribution margin (price - unit variable cost) times the units sold because fixed costs can be ignored. The important consideration is the total contribution margin available to cover fixed costs and contribute to profits.

• Question 1234:

  The limiting factor principle

  A. Applies to identifying alternative courses of action.
  B. Defines the problem.
  C. Justifies an alternative.
  D. Predicts future costs.
  A. Applies to identifying alternative courses of action.

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  Explanation

  The limiting factor principle is used in the decision-making process during the step involving identifying alternative courses of action. The crucial factor is the one that limits or prevents achievement of the desired goal. The mass of alternative choices can be reduced if managers can identify the limiting factors to a problem.

• Question 1235:

  A company enters into an agreement with a firm that will factor the company's accounts receivable. The factor agrees to buy the company's receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at an annual rate of 10% and charge a fee of 2% on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year. Fees and interest are not deducted in advance. Assuming a 360-day year, what is the annual cost of financing?

  A. 10.0%
  B. 12. 0%
  C. 14. 0%
  D. 17. 5%
  D. 17. 5%

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  Explanation

  In an average month, the company will receive $80,000 at the time the receivables are sent to the factor. Over a year's time, the interest on this average advance of $80,000 would be $8,000 at 10% interest. In addition, the factor will charge a 2% factor fee, or $24,000 ($100,000 x .02 x 12) over the course of a year. However, this $24,000 fee is offset by the $18,000 savings in collection expenses, producing a net outlay of only $6,000. Adding the $6,000 to the $8,000 of interest produces an annual net cost of $14,000. Dividing the $14,000 cost by the $80,000 of advanced funds results in a cost of 17. 5%.

• Question 1236:

  While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. Under such philosophy, the price charged on a consistent basis for a specific product would probably be lowest during which life cycle stage?

  A. introduction stage
  B. Growth stage
  C. Mutually stage
  D. Decline stage
  C. Mutually stage

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  Explanation

  During the maturity stage, competition is at its greatest and costs are at their lowest. Moreover, firms are engaged in competitive price-cutting measures, resulting in some of the lowest prices seen during a product's life cycle.

• Question 1237:

  The principal advantage of using commercial paper as a short-term financing instrument is that it

  A. Is usually cheaper than a commercial bank loan.
  B. Is readily available to almost all companies.
  C. Offers security, i.e., collateral, to the lender.
  D. Can be purchased without commission costs.
  A. Is usually cheaper than a commercial bank loan.

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  Explanation

  Commercial papers form of unsecured note that is sold by only the most creditworthy companies. Leis issued ate discount from its face value and has a maturity period of less than 270 days. Commercial paper usually carries a low interest rate in comparison to other means of financing.

• Question 1238:

  A firm with an 18% desired rate of return is considering the following projects (on January 1, Year 1):

  

  

  Project B's internal rate of return is closest to

  A. 15%
  B. 16%
  C. 18%
  D. 20%
  D. 20%

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  Explanation

  The internal rate of return is the discount rate at which the NPV is zero. Consequently, the cash outflow equals the present value of the inflow at the internal rate of return. The present value of $1 factor for Project B's internal rate of return is therefore 4020 ($4,000,000 cash outflow ?$9,950,000 cash inflow). This factor is closest to the present value of $1 for5 periods at 20%.

• Question 1239:

  Jasper Company has a payback goal of 3 years on new equipment acquisitions. A new sorter is being evaluated that costs $450000 and has a 5-year life. Straight-line depreciation will be used; no salvage is anticipated. Jasper is subject to a 40% income tax rate. To meet the company's payback goal, the sorter must generate reductions in annual cash operating costs of

  A. $60,000
  B. $100,000
  C. $150,000
  D. $190,000
  D. $190,000

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  Explanation

  Given a periodic constant cash flow, the payback period is calculated by dividing cost by the annual cash inflows, or cash savings. To achieve a payback period of 3 years, the annual increment in net cash inflow generated by the investment must be $150,000 ($450000 + 3-year targeted payback period). This amount equals the total reduction in cash operating costs minus related taxes. Depreciation is $90000 ($450,000 + 5 years). Because depreciation is a non cash deductible expense, it shields $90,000 of the cash savings from taxation. Accordingly, $60000 ($150000 --$90,000) of the additional net cash inflow must come from after-tax net income. At a 40% tax rate, $60,000 of after-tax income equals $100000 ($60,000 + 60%) of pre-tax income from cost savings, and the outflow for taxes is $40,000. Thus, the annual reduction in cash operating costs required is $190,000 ($150,000 additional net cash inflow required + $40,000 tax outflow).

• Question 1240:

  Service marketing uses the traditional categories of marketing tools (the 4Ps) as well as which additional methods?

  A. Price, place, and promotion
  B. Price, place, and physical evidence
  C. Process, promotion, and people
  D. People, physical evidence, and process
  D. People, physical evidence, and process

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  Explanation

  The traditional 4Ps are product, price, promotion, and place . The three additional Ps used in service marketing are people, physical evidence and presentation, and process. The right employees, if well trained and motivated, enhance customer satisfaction because many services require substantial customer-employee interaction. Physical evidence and presentation are what the customer perceives, such as the decorative features of a restaurant. A process is how the service is performed, for example, delivery of health care in a doctor's office, outpatient clinic, or hospital.