IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 451:

  All else being equal, a company with a higher dividend-payout ratio will have a debt-to-assets ratio and a current ratio. ListA ListB

  A. Higher Higher
  B. Higher Lower
  C. Lower Higher
  D. Lower Lower
  B. Higher Lower

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  Explanation

  A company with a higher dividend payout ratio is distributing more of its earnings as dividends to common shareholders. It will have less Cash and less total assets than a comparable firm with a lower payout ratio. The debt-to-assets ratio will be higher because total assets are lower, and the current ratio will be lower because cash is lower.

• Question 452:

  Which of the following is not a component of market share?

  A. Customer demand
  B. Customer penetration
  C. Customer loyalty
  D. Price selectively
  A. Customer demand

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  Explanation

  Components of the market share are

  Customer penetration (firm customers / all customers) Customer selectively (average purchase from the firm / average purchase from the average firm)

  Customer loyalty (purchases from the firm / total purchases from sellers of the same products)

  Price selectively (firm's average price / average price of all firms)

• Question 453:

  Customer relationship management is best defined as

  A. Coordination with members of the firm's supply chain.
  B. Attracting and sati sing customers.
  C. Market sensing.
  D. Maximizing customer loyalty by managing customer "touch points."
  D. Maximizing customer loyalty by managing customer "touch points."

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  Explanation

  Philip Kilter (Marketing Management) defines customer relationship management as "the process of managing detailed information about individual customers and carefully managing all the customer `touch points' with the aim of maximizing customer loyalty." Its purpose is to create optimal customer equity. Thus, the process involves more than merely attracting customers (through media advertising, direct mail, etc.) and satisl\ting them (something competitors also may do).

• Question 454:

  Which mutually exclusive project would you select if both are priced at $1,000 and your discount rate is 14%: Project A, with three annual cash flows of $1 .000, Project B, with three years of zero cash flow followed by three years of $1,500 annually?

  A. Project A.
  B. Project B.
  C. The IRRs are equal, hence you are indifferent.
  D. The NPVs are equal, hence you are indifferent.
  B. Project B.

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  Explanation

• Question 455:

  Assuming Morton Company borrows the money on the last day of the discount period and repays it 30 days later, the effective interest rate on the loan is

  A. 12. 00%.
  B. 13. 33%.
  C. 13. 20%.
  D. 1348%.
  B. 13. 33%.

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  Explanation

  The company will need $49,000 (98% x $50,000) to pay off the invoice. In addition, it will need a compensating balance equal to 10% of the loan. Thus, the loan amount needed is $54,444 ($49,000 ?.9). The interest at 12% annually on a 30day loan of $54,444 is $544. 44 ($54,444 x 12% x 30 ?360). However, the company has access to only $49,000. Thus, the interest expense on usable funds is at an annual rate of 13. 33% (12 months x $544. 44?49,000).

• Question 456:

  Stewart Industries has been producing two bearings, components B12 and B18, for use in production.

  

  Stewart's annual requirement for these components is 8,000 units of B12 and 11000 units of B18. Recently, Stewart's management decided to devote additional machine time to other product lines resulting in only 41,000 machine hours per year that can be dedicated to the production of the bearings. An outside company has offered to sell Stewart the annual supply of the bearings at prices of $11.25 for B12 and $13. 50 for B18. Stewart wants to schedule the otherwise idle 411000 machine hours to produce bearings so that the company can minimize its costs (maximize its net benefits). Note 1: Variable manufacturing overhead is applied on the basis of direct labor hours. Note 2: Fixed manufacturing overhead is applied on the basis of machine hours. Srewart will maximize its net benefits by

  A. Purchasing 4,800 units of B12 and manufacturing the remaining bearings.
  B. Purchasing 8,000 units of B12 and manufacturing 11,000 units of B18.
  C. Purchasing 11,000 units of B18 and manufacturing 8,000 units of B12.
  D. Purchasing 4,000 units of B18 and manufacturing the remaining bearings.
  D. Purchasing 4,000 units of B18 and manufacturing the remaining bearings.

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  Explanation

  Purchasing will increase the company's costs by $3 (11.25 -$2. 25 - $4 - $2) for each B 12 bearing, or $1.20 per hour ($3/ 2. 5). Buying B18 will only cost the company an additional $1 per machine hour [($13. 50-$3. 75-$4. 50-$2. 25)/3 machine hours]. Thus, the company should make all the needed B12s and compensate for the machine hours constraint by purchasing B18s. Given that each unit of B12 requires 2. 5 hours of machine time, the company can produce the needed 8,000 units in 20,000 hours (2. 5 x 8,000). The remaining 21,000 hours (41,000 ?20,000) can then be used for the production of 7,000 B18s (21,000 / 3hrs.). Because the annual requirement pf B18s is 11,000 units, the other 4,000 units will have to be purchased.

• Question 457:

  A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X for even 5 units of Y (2:5). Fixed costs are $49,500 The unit contribution margins for X and Y are $2. 50 and $1.20. respectively. If the company had a profit of $22,000. the unit sales must have been?

  

  A. 5. 000 12,500
  B. 13. 000 32,500
  C. 23. 800 59,500
  D. 32. 500 13,000
  B. 13. 000 32,500

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  Explanation

• Question 458:

  Calamit4' 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-tine basis. A scrap dealer has agreed to buy it for $8,000. The company's effective tax rate is 40%. Calamity Cauliflower's expected total cash inflow in the final year of the project is?

  A. $100,000
  B. $96,000
  C. $84,000
  D. $66,000
  B. $96,000

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  Explanation

  The expected total cash inflow in the final year of the project consists of(1) $60,000 of cash flows from ongoing operations [$100,000 gross cash inflow x (1.0-- .40 tax rate)], (2) a $6,000 depreciation t shield [($15,000 annual depreciation expense on new equipment) x .40], (3) the after-tax cash inflow from disposal of the new equipment, in this case $6,000 [$10,000 disposal value x (1.0-- .40 tax rate)], and (4) recovery of the working capital set aside for the project ($24 000). The expected total cash inflow in the final year of the project is thus $96,000 ($6O.O00 + $6,000 + $6,000 + $24,000).

• Question 459:

  The management of Pelican, Inc. is evaluating a proposed acquisition of a new machine at a purchase price of $180,000 and with installation costs of $10,000. A $9,000 increase in working capital will be required. The machine Will have a useful life of four years, after which it can be sold for $30,000. The estimated annual incremental operating revenues and cash operating expenses are $450,000 and $300.000, respectively, for each of the four years. Pelican's effective income tax rate is 40%. and the cost of capital is 12%. Pelican uses straight-line depreciation for both financial reporting and income tax purposes. If the project is accepted, the estimated incremental after-tax operating cash flows at the end of the first year wilt be?

  A. $99,000
  B. $106,000
  C. $108,000
  D. $150,000
  B. $106,000

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  Explanation

• Question 460:

  Datacomp Industries, which has no current debt, has a beta of .95 for its common stock. Management is considering a change in the capital structure to 30% debt and 70% equity This change would increase the beta on the stock to 1.05. and the after-tax cost of debt will be 75%. The expected return on equity is 16%, and the risk-free rate is 6%. Should Datacomp's management proceed with the capital structure change?

  A. No, because the cost of equity capital will increase.
  B. Yes, because the cost of equity capital will decrease.
  C. Yes, because the weighted-average cost of capital will decrease.
  D. No, because the weighted-average cost of capital will increase.
  C. Yes, because the weighted-average cost of capital will decrease.

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  Explanation

  The important consideration is whether the overall cost of capital will be lower for a given proposal. According to the Capital Asset Pricing Model, the change will result in a lower average cost of capital For the existing structure, the cost of equity capital is 15. 5% [6% + 95(16% -- 6%)1, Because the company has no debt, the average cost of capital is also 15. 5%. Under the proposal, the cost of equity capital is 16. 5% [6% + 1.05(16% -- 6%)]. and the weighted average cost of capital is 13. 8% [.3(075) + 7(165)]. Hence, the proposal of 13. 8% should be accepted