IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 431:

  If a firm borrows $590,000 at 10% and is required to maintain $50,000 as a minimum compensating balance at the bank, what is the effective interest rate on the loan?

  A. 10.0%
  B. 11.1%
  C. 9.1%
  D. 12. 2%
  B. 11.1%

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  Explanation

  At 10%, the interest on a $500,000 loan is $50,000 per year. However, the $500,000 loan is effectively reduced to $450,000 of usable funds by the compensating balance requirement. Thus, the borrower pays $50,000 of interest for a $450,000 loan, an effective rate of 11.1% ($50,000 - $450,000).

• Question 432:

  Strategic planning is?

  A. Short term.
  B. Operational
  C. Long term
  D. Informal.
  C. Long term

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  Explanation

  Strategic planning, also called long-term planning. Covers periods from 1 to 20 years. Strategic planning is somewhat difficult because of uncertainty about future conditions. Thus, long-range plans are more general and exclude operational detail.

• Question 433:

  A measure that describes the risk of an investment project relative to other investments in general is the

  A. Coefficient of variation
  B. Beta coefficient
  C. Standard deviation
  D. Expected return
  B. Beta coefficient

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  Explanation

  The required rate of return on equity capital in the capital asset pricing model is the risk- free rate (determined by government securities), plus the product of the market risk premium times the beta coefficient (beta measure the firm's risk). The market risk premium is the amount above the risk-free rate that will induce investment in the market. The beta coefficient of an individual stock is the correlation between the volatility (price variation) of the stock market and that of the price of the individual stock. For example, if an individual stock goes up 15% and the market only 10%, beta is 1.5.

• Question 434:

  What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs are 20%?

  A. 250
  B. 500
  C. 800 D. 2,000
  B. 500

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  Explanation

  The breakeven point is where profit is zero and sales = fixed costs + variable costs, so 1 4,000 + 2x. Thus, 8x = 4,000, or x = 500 units. Alternatively, dividing the $4,000 of fixed costs by the $8 per unit contribution margin gives the same result.

• Question 435:

  Capacity expansion is also referred to as

  A. Market penetration
  B. Market development
  C. Product development
  D. Diversification
  A. Market penetration

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  Explanation

  Market penetration is growth of existing products or development of existing markets. It occurs in mature firms within an industry.

• Question 436:

  Bakker Industries seals three products (Products 611, 613, and 615) that it manufactures in a factory consisting of one department Both labor and machine time are applied to the products. Bakker's management is planning its production schedule for the next several months There are labor shortages in the community. Some of the machines will be out of service for extensive overhauling Available machine and labor time for each of me next 6 months is listed below

  

  If Bakker's strategy is to maximize dollar profits, how many units of product 615 will be produced?

  A. 400 units
  B. 500 units.
  C. 800 units
  D. 1.000 units.
  C. 800 units

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  Explanation

  When a company has a scarce resource machine hour capacity, the company should maximize contribution per machine hour to maximize overall profits. Because product 615 has the lowest contribution per machine hour of the three products, product 615 will be produced using the remaining hours after product 613 and product 611 have been produced to equal demand. There fore the 400 hours needed to produce product 613 and the 1,000 hours needed to produce product 611 are subtracted from the 3. 000 available machine hours. This leaves a total of 1,600 machine hours for product 615, which equates to 800 units being produced.

• Question 437:

  Which one-of the following best describes tactical profit plans?

  A. Details, short-term, broad responsibilities qualitative
  B. Broad, short-term responsibilities at all levels, quantitative
  C. Detailed, short-term responsibilities at all levels, quantitative
  D. Broad long-term broad responsibilities qualitative
  C. Detailed, short-term responsibilities at all levels, quantitative

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  Explanation

  A tactical profit plan, also called a budget, must be detailed enough that middle managers know exactly what cost and revenue targets they are responsible for. Tactical plans necessarily focus on the short term, and they must detail responsibilities at all levels of the organization. Lastly, they must be quantitative so that managers know exactly what their goals are.

• Question 438:

  Mesa Company is considering an investment to open a new banana processing division. The project in question would entail an initial investment of $45000, and as a result of the project cash inflows of $20000 can be expected in each of the next 3 years. The hurdle rate is 10%. What is the profitability index for the project?

  A. 1.0784
  B. 1.1053
  C. 1.1379
  D. 1.1771
  B. 1.1053

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  Explanation

• Question 439:

  Rosecrans Manufacturing produces kerosene lanterns. The company can sell all of its output. Each unit sells for $120. and direct materials costing $48 per unit are added at the start of the first operation. Other variable costs are immaterial. Production data for one of its products is presented below:

  

  Tullahoma Company has offered to perform the Operation 2 function on 1,000 units at a unit price of $40, excluding direct materials cost. Chattanooga Company has offered to perform the Operation 1 function on 11000 units at a price of $7, excluding direct materials cost. Chickamauga Company has made an offer to perform the Operation 1 function on 5,000 units at a unit cost of $5 (excluding direct materials cost). Which of these mutually exclusive offers is acceptable to Rosecrans?

  A. Tullahoma's offer.
  B. Chattanooga's offer.
  C. Chickamauga's offer.
  D. None of the offers should be accepted.
  A. Tullahoma's offer.

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  Explanation

  Tullahoma's offer should be accepted because its cost is $40,000 (1,000 units x $40), and the increase in throughput contribution is $72,000 [1,000 units x ($120 unit price--$48 DM per unit)]. Hence, the relevant cost of Tullahoma's offer is less than the incremental throughput contributed. Tullahoma's offer effectively increases the capacity of the bottleneck operation. Chattanooga's and Chickamauga's offers should both be

• Question 440:

  Buyer-based pricing involves

  A. Adding a standard markup to the cost of the product.
  B. Determining the price at which the product will earn a target profit.
  C. Basing prices on the product's perceived value
  D. Basing prices on competitors' prices.
  C. Basing prices on the product's perceived value

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  Explanation

  Buyer-based pricing involves basing prices on the products perceived value rather than on me seller's cost. Nonprice variables in the marketing mix augment the perceived value. For example, a cup of coffee may have a higher price at an expensive restaurant than at a fast food outlet