IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 461:

  Which one of the following transactions would increase the current ratio and decrease net profit?

  A. A federal income tax payment due from the previous year is paid
  B. A stock dividend is declared
  C. Uncollectible accounts receivable are written off against the allowance account
  D. Vacant land is sold for less than the net book value
  D. Vacant land is sold for less than the net book value

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  Explanation

  The current ratio is calculated by dividing current assets by current liabilities. thus, any transaction that will either increase current assets or decrease current liabilities will increase the current ratio selling vacant for less than its book value(at a loss )would increase current assets (cash)and decrease net profit.

• Question 462:

  A company has purchased a $1000. 7%, 5-year bond at par that pays interest annually. The discount tractors for he present value $1at 7% for five periods are as follows

  

  For purposes of duration hedging, the duration of the bond is

  A. 39years.
  B. 5O0years
  C. 439years.
  D. 3. 8lyears
  C. 439years.

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  Explanation

• Question 463:

  The theory underlying the cost of capital is primarily concerned with the cost of

  A. Long-term funds and Old funds.
  B. Short-term funds and new funds
  C. Long-term funds and new funds.
  D. Short-term funds and old funds.
  C. Long-term funds and new funds.

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  Explanation

  The theory underlying the cost of capital is based primarily on the cost of long-term funds and the acquisition of new funds.. The reason is that long-term funds are used to finance long-term investments. For an investment alternative to be viable, the return on the investment must be greater than the cost of the funds used. The objective in short- term borrowing is different. Short-term loans are used to meet working capital needs and not to finance long-term investments.

• Question 464:

  Incremental cost is

  A. The difference in total costs that results from selecting one choice instead of another.
  B. The profit forgone by selecting one choice instead of another.
  C. A cost that continues to be incurred in the absence of activity.
  D. A cost common to all choices in question and not clearly or feasibly allocable to any of them.
  A. The difference in total costs that results from selecting one choice instead of another.

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  Explanation

  Incremental cost is the difference in total cost between two courses of action. "Decremental cost" is the term used when the difference is noted as a decline although "incremental" is the more common term. Incremental cost is also referred to as differential cost.

• Question 465:

  A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost. $9.15, would

  A. Allow evaluation of both divisions on a competitive basis.
  B. Satisfy the Video Cards Division's profit desire by allowing recovery of opportunity costs.
  C. Provide no profit incentive for the Video Cards Division to control or reduce costs.
  D. Encourage the Entertainment Division to purchase video cards from an outside source.
  C. Provide no profit incentive for the Video Cards Division to control or reduce costs.

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  Explanation

• Question 466:

  Which of the following models is essentially an application to cash management of the inventory economic order quantity (EOQ) formula?

  A. Miller-Or cash management model.
  B. Baumol cash management model.
  C. Altman's Z-Score model.
  D. Arbitrage pricing model.
  B. Baumol cash management model.

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  Explanation

  The Bauman cash management model is essentially the inventory EOQ model in that it minimizes the total of fixed trading costs and cash carrying costs. It is a deterministic model in the same way that the icon model is deterministic.

• Question 467:

  A proposed transfer price may be a cost-plus price. Variable-cost-plus price is the price

  A. On the open market
  B. Representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale.
  C. Usually set by an absorption-costing calculation
  D. Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup
  D. Set by charging for variable costs plus a lump sum or an additional markup, but less than full markup

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  Explanation

  The variable-cost-plus price is the price set by charging for variable cost plus either a lump sum or an additional markup but less than the lull markup price. This permits top management to enter the decision process and dictate that a division transfer at variable cost plus some appropriate amount.

• Question 468:

  The market price of Flesher Corporation's common stock is $100 per share, and each share gives its owner one subscription right. Five rights are required to purchase an additional share of common stock at the subscription price of $91 per share. The value of one share of Fleshers common stock when it goes ex-rights, in theory, is closest to

  A. $9100
  B. $a.2O
  C. $9850
  D. $100.00
  C. $9850

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  Explanation

  The stock will decline in value by the van (use of the night. The theoretical value of a night is $1.50. Thus, the value of the stock should decline to $98.50 ($100.00 - $1.50),

• Question 469:

  A global industry is one that?

  A. Contains competitors that are multinationals.
  B. Has secured a competitive advantage based on economies of scale in centralized production.
  C. Has a strategic advantage by establishing coordinated competition in many national markets.
  D. Has made large direct investments abroad.
  C. Has a strategic advantage by establishing coordinated competition in many national markets.

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  Explanation

  The anises of a competition in an industry requires consideration of the economics of the industry and the characteristics of competitors. However, in a global industry, the anises is not limited to one market. but extends to all markets (geographic or national) taken together. Michael E. Porter defines a global industry as one in which the strategic positions of competitors in major geographic or national markets are fundamental affected by their overall global positions." Thus, an industry becomes global because it perceives a net strategic advantage to competing, as Porter says, in coordinated way in many national markets

• Question 470:

  If Williams, Inc. needs a total of $200,000. the firm's weighted-average cost of capital would be

  A. 19.8%
  B. 4. 8%
  C. 6. 5%
  D. 6. 8%
  C. 6. 5%

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  Explanation

  Williams' preferred capital structure is 50% common stock. However, $ 100.000 of retained earnings (50% of the required $200,000 of capital) will be used before any common stock is issued. Thus, the weighted-average cost of capital will be

  determined based on the respective costs of the bonds, preferred stock. and retained earnings. The cost of the bonds is given as 4. 8%, the cost of the preferred stock is 8%, and the cost of the retained earnings is 7% ($7 dividend -- $100

  market price of the common stock). These three costs are then weighted by the preferred capital structure ratios:

  30%x4. 8% 1.44%

  20% x 8.0% 1.60%

  50% x 7. 0% 3. 50%

  Total 6. 54%

  Rounding to the nearest tenth produces the correct answer of 6. 5%. Williams, Inc. is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described as follows, the company can sell unlimited

  amounts of all instruments.

  Williams can raise cash by selling $1,000, 8%. 20- year bonds with annual interest payments. In selling the issue, an average premium of $30 per bond would be received, and the firm must pay flotation costs of $30 per bond. The after-tax

  cost of funds is estimated to be 4. 8%. Williams can sell $8 preferred stock at par value, $105 per share. The cost of issuing and selling the preferred stock is expected to be $5 per share.

  Williams' common stock is currently selling for $100 per share. The firm expects to pay cash dividends of $7 per share next year, and the dividends are expected to remain constant. The stock will have to be under priced by $3 per share, and

  flotation costs are expected to amount to $5 per share. Williams expects to have available $100,000 of retained earnings in the coming year, once these retained earnings are exhausted, the firm will use new common stock as the form of

  common stock equity financing.

  Williams' preferred capital structure is

  Long-term debt 30%

  Preferred stock 20%

  Common stock 50%