IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 291:

  Best Computers believes that its collection costs could be reduced through modification of collection procedures. This action is expected to result in a lengthening of the average collection period from 28 days to 34 days; however, there will be no change in uncollectible accounts. The compass budgeted credit sales for the coming year are $27 000,000, and short-term interest rates are expected to average 8%. To make the changes in collection procedures cost beneficial, the minimum savings in collection costs (using a 360-dayyear) forth coming year would have to be

  A. $30000
  B. $360,000
  C. $180,000
  D. $36,000
  D. $36,000

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  Explanation

  Given sales of $27,000,000, the average amount of daily sales must be $75000 ($27,000,000 ii ?360 days). The increased accounts receivable balance is therefore $450 .000 ($75,000 x 6 days). With an additional $450,000 of capital invested in receivables, the compass interest cost will increase by $36,000 per year ($450,000 x 8%). Thus, the company must save at least $36,000 per year to justify the change in procedures.

• Question 292:

  Assuming other factors are held constant, the dollar value of the firm's overall market share will increase when

  A. Customer penetration decreases
  B. The average purchases from the average firm increases
  C. Total purchases from seller of the same products increases
  D. Price selectively increases
  D. Price selectively increases

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  Explanation

  An increases in price selectively (firm's average price / average price of all firms) results in an increase in the dollar value of the overall market share. Thus, the firm's average price may have risen , or the average price of its competitors may have fallen.

• Question 293:

  Ordinarily, the most appropriate basis on which to evaluate the performance of a division manager is the division's

  A. Contribution margin.
  B. Net revenue minus controllable division costs.
  C. Gross profit
  D. Net income minus the division's fixed costs.
  B. Net revenue minus controllable division costs.

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  Explanation

  Managerial performance should be evaluated on the basis of those factors controllable by the manager. Managers may control revenues, costs, and/or investment in resources A well-designed responsibility accounting system establishes responsibility centers within the organization

• Question 294:

  Which one of the following statements about the payback method of investment analysis is correct? The payback method

  A. Does not consider the time value of money.
  B. Considers cash flows after the payback has been reached.
  C. Uses discounted cash flow techniques.
  D. Generally leads to the same decision as other methods for long-term projects.
  A. Does not consider the time value of money.

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  Explanation

  The payback method calculates the amount of time required to complete the return of the original investment, i.e.1 the time it takes for a new asset to pay for itself. Although the payback method is easy to calculate, it has inherent problems. The time value of money and returns after the payback period are not considered.

• Question 295:

  If a firm's credit terms require payment within 45 days but allow a discount of 2% if paid within 15 days (using a 360-day year), the approximate cost or benefit of the trade credit terms is

  A. 2%.
  B. 16%.
  C. 48%.
  D. 24%
  D. 24%

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  Explanation

  Assume that an invoice is due in 45 days. However, the seller allows a 2% cash discount if the invoice is paid within 15 days. Given early payment1 the seller will receive their money at least 30 days (45--15) sooner than the contract requires. However, the seller is effectively paying 2% of the invoice price to receive the money 30 days early. The approximate annual interest cost is 24% because a 360-day year contains 12 periods of 30 days each.

• Question 296:

  Gars Company, a retail store, is considering forgoing sales discounts to delay using its cash. Supplier credit terms are 2/10, net 30. Assuming a 360-dayyear, what is the annual cost of credit if the cash discount is not taken and Gary pays net 30?

  A. 24. 0%
  B. 24. 5%
  C. 36. 0%
  D. 36. 7%
  D. 36. 7%

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  Explanation

  On a $1 .000 invoice, the company could save $20 by paying within the discount period. Thus, hand immediate payment of $980 would save the company $20, and the interest rate charged for holding $980 an I additional 20 days (30-- 10) is 2. 04% ($20 + $980). Because the number of 20-day periods in a year is 18 (360 + 20), [he annual rate is 36. 7% (18 x 2. 04%).

• Question 297:

  If a worker encounters a production kanban at his/her workstation,the worker should

  A. Release the requested item to the next stage in the process.
  B. Begin manufacturing the requested item.
  C. Initiate a purchase order with the supplier of the requested item .
  D. Confirm the amount of the item requested and present the kanban to the production supervisor.
  B. Begin manufacturing the requested item.

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  Explanation

  In a kanban inventory control system,a production kanban is an indication to a worker to begin producing the item referred to on the kanban.

• Question 298:

  A company's beta value has decreased because of a change in its marketing strategy. Consequently, the discount rate applied to expected cash flows of potential projects will be

  A. Reduced.
  B. Increased.
  C. Unchanged.
  D. Zero.
  A. Reduced.

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  Explanation

  There is a positive relationship between a firm's beta value and the discount rate applied to cash flows. Thus, a decrease in beta value will reduce the discount rate.

• Question 299:

  Calamity Cauliflower Corporation is considering undertaking a capital project. The company would have to commit $24 .000 of working capital in addition to an immediate outlay' of $160,000 for new equipment. The project is expected to generate $100,000 of annual income for 10 years. At the end of that time, the new equipment, which will be depreciated on a straight-line basis, is expected to have a salvage value of $10,000. The existing equipment that would be sold to make room for the project has a historical cost of $220,000 and accumulated depreciation of $208,000. It has an estimated remaining useful life of 2 years and the remaining book value is being depreciated on a straight-line basis.A scrap dealer has agreed to buy it for $8,000. The company's effective tax rate is 40%. Calamity Cauliflower's expected depreciation tax shield for the final year of the project is

  A. $6,000
  B. $5. 200
  C. $2,000
  D. $0
  A. $6,000

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  Explanation

  The old equipment has a remaining useful life of two years, after which it will be fully depreciated and no longer generating depreciation expense. Thus, the depreciation tax shield in the project's last year consists only of the annual depreciation expense on the new equipment [($160,000 historical cost ? $10,000 estimated salvage value) 10 years $15,000] Limes the tax rate (.40), or $6,000.

• Question 300:

  When evaluating a capital budgeting project, a company's treasurer wants to know how changes in operating income and the number of years in the project's useful life will affect its breakeven internal rate of return. The treasurer is most likely to use

  A. Scenario analysis.
  B. Sensitivity analysis.
  C. Monte Carlo simulation.
  D. Learning curve analysis.
  B. Sensitivity analysis.

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  Explanation

  Forecasts of many calculated NPVs under various assumptions are compared to see how sensitive NPV is to changing conditions. Changing or relaxing the assumptions about a certain variable or group of variables may drastically alter the NPV. Thus, the asset may appear to be much riskier than was originally predicted. In summary, sensitivity analysis is simply an iterative process of recalculated returns based on changing assumptions.