IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 271:

  Intense rivalry among firms in an industry increases when there is

  I. A low degree of product differentiation.

  II.

  Low consumer switching costs

  A. I only.
  B. II only.
  C. Both I and II.
  D. Neither I nor II.
  C. Both I and II.

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  Explanation

  The degree of product differentiation and the costs of switching from one competitor's product to another increase the intensity of rivalry and competition in an industry. Less differentiation tends to heighten competition based on price, with price cutting leading to lower profits. Low costs of switching product also increase competition.

• Question 272:

  Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit

  

  Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assuming Kator has excess capacity, the minimum price that is acceptable for this one-time special order is in excess of

  A. $47
  B. $50
  C. $60
  D. $77
  B. $50

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  Explanation

  A company must cover the incremental costs of a special order when it has excess capacity. The incremental costs for product KB-96 are $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling). The fixed costs will not change as a result of the special order, so they are not relevant. Thus, any price in excess of $50 per unit is acceptable.

• Question 273:

  The statement of income for Dimmell Co presented below represents the operating resifts for the tsar year Just ended Dimmell had sales of 1.800 tons of product during the current year The manufacturing capacity of Dimmell's facilities is

  3. 000 tons of product.

  

  If the sales volume is estimated to be 2,100 tons in the next year, aid if the prices and costs stay at the same levels and amounts next year. The after-tax net income that Dimmell can expect for 2003 is

  A. $135. 000
  B. $110,250
  C. $283,500
  D. $184. 500
  A. $135. 000

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  Explanation

• Question 274:

  All of the following are inventory carrying costs except

  A. Storage.
  B. Insurance.
  C. Opportunity cost of inventory investment.
  D. Inspections.
  D. Inspections.

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  Explanation

  Inventory carrying costs are incurred to hold inventory. Examples include the costs of storage, insurance, security, inventory taxes, depreciation or rent of warehouse facilities, obsolescence and spoilage, and the opportunity cost of inventory investment. Inspection costs are not related to the length of time inventory is held. They are costs of taking delivery and are best classified as ordering costs.

• Question 275:

  A strategic business unit (SBU) has a relative market share (RMS) of 2. 0 and a market growth rate (MGR) of 9.5%. According to the partook model for competitive analysis created by the Boston Consulting Group, such an SBU is considered a

  A. Star.
  B. Question mark.
  C. Cash cow.
  D. Dog.
  C. Cash cow.

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  Explanation

  The annual MGR reflects the maturity and attractiveness of the market and the relative need for cash to finance expansion. An MOP of 10% or more is generally regarded as high. The RMS reflects an Sub's competitive position in the market segment. An RMS of 1.0 or more signifies that the SBU has a strong competitive position. Cash cows have high RMS and low MOR... They are strong competitors and cash generators in low- growth markets.

• Question 276:

  A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction in the investment in accounts receivable, and a reduction in the number of doubtful accounts. Based upon this information, we know that

  A. Net profit has increased.
  B. The average collection period has decreased.
  C. Gross profit has declined.
  D. The size of the discount offered has decreased.
  B. The average collection period has decreased.

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  Explanation

  An increase in discounts taken accompanied by declines in receivables balances and doubtful accounts all indicate that collections on the increased sales have been accelerated. Accordingly, the average collection period must have declined. The average collection period is a ratio calculated by dividing the number of days in a year (365) by the receivable turnover. Thus, the higher the turnover, the shorter the average collection period. The turnover increases when either sales (the numerator) increase, or receivables (the denominator) decrease. Accomplishing both higher sales and lower receivables increases the turnover and results in a shorter collection period.

• Question 277:

  A firm is exploring the possibility of engaging in a new capital project. A salvage company is offering the him more for its old equipment than the equipment's book value. If the firm accepts the salvage company's offer, the reduction to the net initial investment in the project will be?

  A. Less than if the salvage company's offer had resulted in a loss.
  B. Greater than if the salvage company's offer had resulted in a loss
  C. The same as if the salvage company's offer had reused in a loss.
  D. Not determinable from the information given.
  A. Less than if the salvage company's offer had resulted in a loss.

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  Explanation

  Since the salvage company's offer is for more than the book value of the equipment, an accrual- basis gain would result A loss on disposal of old equipment results in a tax benefit, since the loss reduces accrual basis income. Therefore, a gain. which increases accrual-basis income, results in a tax detriment, and the reduction to the net initial investment will be less than if the salvage company's offer had resulted in a loss.

• Question 278:

  Which basic force(s) drive (s) industry competition and the ultimate profit potential of the industry?

  I. Threat of new entrants.

  II. Bargaining power of suppliers.

  III. Favorable access to raw materials and labor.

  IV.

  Product differentiation

  A. I only
  B. I and II only
  C. III and IV only
  D. I, II, III, and IV
  B. I and II only

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  Explanation

  Threat of new entrants and bargaining power of suppliers are among the five basic forces that drive industry competition and the ultimate profit potential industry. This potential is measured in terms of long-term return on invested capital. The other three forces are rivalry among existing firms, threat substitutes and threat of buyers' bargaining power.

• Question 279:

  What is the yield to maturity on Fox Inc.'s bonds if its after-tax cost of debt is 9% and its tax rate is 34%?

  A. 5. 94%
  B. 9%
  C. 1364%
  D. 26. 47%
  C. 1364%

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  Explanation

• Question 280:

  Growl Corporation's $1,000 par value convertible debentures are selling at $1,040 when its stock is selling for $46. 00 per share. If the conversion ratio is 20, what will be the conversion price?

  A. $22. 61
  B. $46. 00
  C. $50.00
  D. $52. 00
  C. $50.00

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  Explanation

  The conversion price is the assumed price of the stock, which was set at the time the bonds were issued. Dividing the $1,000 face value by the 20 shares results in a conversion price of $50.