IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 231:

  Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year. the shirts sold for $7. 50 each, and the variable cost to manufacture them was $2. 25 per unit. The company needed to sell 20.000 shirts to break even. The net income last year was $5,040 Donnelly expectations for me coming year include the following:

  The sales price of the T-shirts will be $9

  Variable cost to manufacture Will increase by one-third

  Fixed costs will increase by 10% The income tax rate of 40% will be unchanged

  The selling price that would maintain the same contribution margin rate as last year is?

  A. $9.00
  B. $8.25
  C. $10.00
  D. $9.75
  C. $10.00

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  Explanation

  Last year, unit variable cost was $225, so the unit contribution margin (UCM) was $5. 25 ($7. 50 price --$2. 25). and the contribution margin rate (CMR) was 70% ($5. 25. $7. 50). If variable costs increase by one-third, the new variable cost will be $3 [$2. 25 x (4 3)]. If a 70% CMR is desired, the $3 variable cost will be 30% of sales, and the unit sales price will be $10 ($3 30%)

• Question 232:

  Yipann Corporation is reviewing an investment proposal. The initial cost, as well as other related data for each year. are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its net book value, and there will be no salvage value at the end of the investments life.

  

  Yipann uses a 24% after4axtargetrate of return for new investment proposals. The discount figures for a 24% rate of return are given.

  

  The average annual cash inflow at which Yipann would be indifferent to the investment (rounded to the nearest dollar) is

  A. $21,000
  B. $40,000
  C. $38,321
  D. $46,667
  C. $38,321

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  Explanation

  This problem requires the use of the net present value (NPV) method of investment analysis. The objective is to determine what average annual net cash inflow will equal the initial cost when discounted at a rate of 24%. Given that the investment has an expected life of5years, the appropriate time value of money factor is that for the present value of an ordinarjannuityfor5years at 24%. In this case, the annual net cash inflow is unknown, but the product of the factor (2. 74) and the inflow is $105,000. Thus, dividing $105000 by 2. 74 results in an average annual net cash inflow of $38,321. In other words, if annual inflows are $38,321 per year, the present value is $105,000. This present value is equal to the initial cost, and the net present value is zero. Ata net present value of zero, the investor is indifferent as to whether to undertake the investment.

• Question 233:

  Multinational financial management requires that

  A. Legal differences be excluded from financial decisions.
  B. Political risk be ignored from multinational corporate financial analyses because it cannot be quantified by management.
  C. The effect of changing currency values be included in financial analyses.
  D. Firms diversity into at least 20 countries to receive a sufficient diversification benefit.
  C. The effect of changing currency values be included in financial analyses.

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  Explanation

  Multinational financial management requires analysis of legal and political risks, as well as the effect of changing currency values.

• Question 234:

  A firm has $3 million in total assets and $1.65 million in equity. How much of its $500,000 capital budget should be debt- financed to retain the same debt-equity ratio?

  A. $50,000
  B. $225,000
  C. $275,000
  D. $450,000
  B. $225,000

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  Explanation

  The firm's total assets are $3 million and total equity is $1.65 million. Thus, liabilities are $1.35 million ($3 million - $1.65 million). The current debt-equity ratio is 1.35 to 1.65, or 45% ($1.35 million ?$3 million) to 55% ($1.65 million ?$3 million). Thus, to maintain this ratio, 45% of all new investment should come from debt financing. Multiplying 45% times the $500,000 capital budget results in a need for $225,000 in debt financing.

• Question 235:

  Determining the appropriate level of working capital for a firm requires

  A. Changing the capital structure and dividend policy of the firm.
  B. Maintaining short-term debt at the lowest possible level because it is generally more expensive than long-term debt.
  C. Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.
  D. Maintaining a high proportion of liquid assets to total assets in order to maximize the return on total investments.
  C. Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.

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  Explanation

  Working capital finance concerns the determination of the optimal level, mix, and use of current assets and current liabilities. The objective is to minimize the cost of maintaining liquidity, while guarding against the possibility of technical in solvency. Technical in solvency is defined as the inability to pay debts as they come due.

• Question 236:

  The manufacturing concept that relates demand forecasts to specific dates for completion is

  A. Master production schedule
  B. Materials requirements planning
  C. Manufacturing resource planning
  D. Bill of materials
  A. Master production schedule

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  Explanation

  The yearly/quarterly/monthly numbers and styles of finished goods called for in the demand forecasts included in the operational plans must turned into specific for completion and availity for shipment to the customer.this is the task of the master production schedule(MPS)

• Question 237:

  Pontotoc industries manufactures a product that is used as a subcomponent by other manufacturers It has the following price and cost structure

  

  During the next year, sales are expected to be 10.000 units all costs will remain the same except for fixed manufacturing overhead, which will increase 20%. and direct materials. which will increase 10%. The selling price per unit for next year will be $320. Based on this information, Pontotoc's contribution margin for next year will be

  A. $1,240,000
  B. $1,360,000
  C. $2,160,000
  D. $2,200,000
  C. $2,160,000

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  Explanation

  Contribution margin is the excess of sales over variable costs. Sales of 10,000 units at $320 each will produce total revenue of $3,200,000. Variable costs will be $104 per Unit, consisting of $44 for direct maternal, $30 for direct labor. $24 for variable overhead, and $6 for selling costs. At $104 per unit, the 10,000 units will have total variable costs of $1,040,000, resulting in a contribution margin of $2,160,000 ($3,200,000 -- $1,040,000).

• Question 238:

  Simulation, a widely used technique in decision modeling, is a

  A. Process of modeling in which real activities are represented in mathematical form.
  B. Tool used for allocating scarce resources.
  C. Technique used to add random behavior to simulate uncertain.
  D. Technique used to map out possible actions given probabilistic events.
  A. Process of modeling in which real activities are represented in mathematical form.

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  Explanation

  Computer simulation is used when an optimization model cannot be developed, e.g., because the variables exceed the equations describing them. Simulation involves constructing a mathematical/logical model incorporating most of the features of the problem. This model is tested in a variedly of hypothetical situations, and the modeled responses can then be measured.

• Question 239:

  Which of the following is the best example of a variable cost?

  A. The corporate president's salary.
  B. Cost of raw material.
  C. Interest charges.
  D. Property taxes.
  B. Cost of raw material.

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  Explanation

  Variable costs vary directly with the level of production. As production increases or decreases, material cost increases or decreases, usually in a direct relationship.

• Question 240:

  Which of the following is exercisable on at the expiration date?

  A. Coleopteran.
  B. European opinion
  C. American option.
  D. Put option.
  B. European opinion

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  Explanation

  An American option is a contractual arrangement that gives the owner the right to buy or sell an asset at a fixed pence at ark moment in flume before or on a specified date. A European option is exercisable one at the expiration date