IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 371:

  Of the following decisions, capital budgeting techniques would least likely be used in evaluating the

  A. Acquisition of new aircraft by a cargo company.
  B. Design and implementation of a major advertising program.
  C. Trade for a star quarterback by a football team.
  D. Adoption of a new method of allocating nontraceable costs to product lines.
  D. Adoption of a new method of allocating nontraceable costs to product lines.

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  Explanation

  Capital budgeting is the process of planning expenditures for investments on which the returns are expected to occur over a period of more than 1 year. Thus, capital budgeting concerns the acquisition or disposal of long-term assets and the financing ramifications of such decisions. The adoption of a new method of allocating, nontraceable costs to product lines has no effect on a company's cash cows, does not concern the acquisition of long- term asset and is not concerned with financing Hence, capital budgeting is irrelevant to such a decision.

• Question 372:

  The chief financial officer of Pauley, Inc has requested an evaluation of a proposed acquisition of a new machine at a purchase price of $60.000 and with installation costs of $10,000. A $3,000 increase in working capital will be required. The machine will have a useful life of four years. after which it can be sold for $10,000. The estimated annual incremental operating revenues and cash operating expenses are $150,000 and $100,000, respectively, for each of the four years. Pauley's effective income tax rate is 40%, and the cost of capital is 12%. Pauley uses straight-line depreciation for both financial reporting and income tax purposes. Pauley's estimated after-tax cash flow in the fourth year, at which time the equipment will be sold, will be?

  A. $34,000
  B. $45,000
  C. $46,000
  D. $49,000
  D. $49,000

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  Explanation

• Question 373:

  A runner-up firm in a market may choose a market-challenger strategy. Which general attack strategy adopted by a market challenger is directed at a gap in customer need fulfillment?

  A. Guerilla warfare
  B. Bypass attack
  C. Frontal attack
  D. Flank attack
  D. Flank attack

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  Explanation

  A flank attack may be directed at a geographic or segmental weakness of the target (an underserved market) or an unmet need (such as the desire for more healthful fast food). A flank attack succeeds when market segments shift. The result is a gap in need fulfillment that the attacker can convert into a strong position in a profitable segment.

• Question 374:

  Which of the following statements regarding budgets is false?

  A. Budgets present organizational plans in a formal, logical, and integrated manner.
  B. Budgets are used only as a planning function.
  C. Budgets may be developed for cash lows or labor usage.
  D. A budget is a plan that contains a quantitative statement of expected results.
  B. Budgets are used only as a planning function.

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  Explanation

  Budget formulation is a planning function; however, budgets are also useful control devices. Budgets provide a basis for control of performance through comparisons of actual with budgeted data. They permit analysis of variations from plans and signal the need for corrective managerial action.

• Question 375:

  The process of dividing all potential consumers into smaller groups of buyers with distinct needs, characteristics, or behaviors, who might require a similar product of service mix, is called

  A. Strategic planning.
  B. Market segmentation.
  C. Product positioning.
  D. Objective setting.
  B. Market segmentation.

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  Explanation

  Market segmentation is the process of dividing all potential consumers into smaller groups of buyers with distinct needs, characteristics, or behaviors, who might require a similar product or service mix.

• Question 376:

  Which lye of target market selection occurs when multiple products are sold to one customer group?

  A. Market specialization.
  B. Full market coverage.
  C. Product specialization
  D. Selective specialization
  A. Market specialization.

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  Explanation

  Market specialization entails selling multiple products to one customer group. Hence, the risk is that the group will suffer a loss of purchasing power. The advantage is that the firm may develop considerable customer equity among the members of the targeted group. The market specialist may then be able to leverage that equity to sell other products to the group.

• Question 377:

  The capital budgeting model that is ordinarily considered the best model for long-range decision making is the

  A. Payback model
  B. Accounting rate of return model
  C. Unadjusted rate of return model
  D. Discounted cash flow model
  D. Discounted cash flow model

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  Explanation

  The capital budgeting methods that are generally considered the best for long-range decision making are the internal rate of return and net present value methods. These are both discounted cash flow methods

• Question 378:

  Lawson Company has the opportunity increase annual sales by $100,000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense is expected to be 15%, and collection costs will be 5%. The compass manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Lawson accepts this opportunely, the company's after-tax profit will increase by

  A. $4,000.
  B. $6,000.
  C. $10,000.
  D. $9,000.
  B. $6,000.

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  Explanation

  The company's manufacturing and selling costs exclusive of bad debts equal 70% of sales. Hence, the gross profit on the $100,000 increase in sales will be $30,000 ($100,000 x 30%). Assuming $15,000 of bad debts and $5,000 of collection expense, the increase in pre4ax income will be $10,000 ($30,000--$20,000). Consequently, after-tax income will increase by $6,000 [$10,000 -- (40% $10,000)].

• Question 379:

  Multi Frame Company has the following revenue and cost budgets for the two products it sells: The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, Multi Frame rounds to the nearest cent and unit.The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant is

  

  A. 171,958 units.
  B. 418,455 units.
  C. 153,947 units.
  D. 365,168 units.
  C. 153,947 units.

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  Explanation

• Question 380:

  A firm is planning to issue a callable bond with an 8% coupon rate and 10 years to maturity. A straight bond with a similar rate is priced at $1,000. If the value of the issuer's call option is estimated to be $50, what is the value of the callable bond?

  A. $1,000
  B. $950
  C. $1,050
  D. $900
  B. $950

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  Explanation

  A callable bond is not as valuable to an investor as a straight bond. Thus, the $50 call option is subtracted from the $1,000 value of a straight bond to arrive at a $950 value for the callable bond.