IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 481:

  In evaluating a capital budget project, the use of the net present value (NPV) model is generally not affected by the

  A. Method of funding the project.
  B. Initial cost of the project.
  C. Amount of added working capital needed for operations during the term of the project.
  D. Project's salvage value.
  A. Method of funding the project.

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  Explanation

  The NPV method computes the present value of future cash inflows to determine whether they are greater than the initial cash outflow. Future cash inflows include any salvage value on facilities. Included in the initial investment are the cost of new equipment and other facilities, and additional working capital needed for operations during the term of the project. The discount rate (cost of capital or hurdle rate) must be known to discount the future cash inflows. If the NPV is positive, the project should be accepted. The method of funding a project is a decision separate from that of whether to invest.

• Question 482:

  Tonya, Inc. has a cost of capital of 15% and is considering the acquisition of a new machine that costs $800,000 and has a useful life of 5 years. Tonya projects that earnings and cash flow will increase as follows:

  

  Interest rate factors at 15% are as follows:

  

  What is the profitability index for the investment?

  A. 0.05
  B. 0.96
  C. 1.05
  D. 1.25
  C. 1.05

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  Explanation

  The profitability index is the present value of the future net cash flows divided by the present value of the net initial investment. The present value of the future net cash flows is $837,200. Dividing the $800,000 initial cost of the investment into the $837,200 present value of the future net cash inflows produces a profitability index of approximately 1 .05. Any profitability index greater than one is considered acceptable.

• Question 483:

  The length of time required to recover the initial cash outlay of a capital project is determined by using the

  A. Discounted cash flow method.
  B. Payback method.
  C. Weighted net present value method.
  D. Net present value method.
  B. Payback method.

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  Explanation

  The payback method measures the number of years required to complete the return of the original investment. This measure is computed by dividing the net investment by the average expected cash inflows to be generated, resulting in the number of years required to recover the original investment. The payback method gives no consideration to the time value of money, and there is no consideration of returns after the payback period.

• Question 484:

  Independent harms that agree to integrate their operations to achieve bring and selling power are most likely to operate in which type of vertical marketing system (VMS)?

  A. Contractual.
  B. Administered.
  C. Corporate.
  D. Conventional channel.
  A. Contractual.

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  Explanation

  A contractual VMS is one in which independent firms on separate production and distribution levels have combined on a contractual basis to achieve bring and selling power Examples include wholesaler sponsored chains, retail cooperatives, and franchise operations.

• Question 485:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

  

  Madengrad's income tax rate is4O%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.The annual sales volume required for Madengrad Company to break even is

  A. 22,000 units.
  B. 11,000units.
  C. 8,400 units.
  D. 13,888 units.
  A. 22,000 units.

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  Explanation

  The formula for the breakeven point in units divides the fixed costs by the unit contribution margin ($900 selling price -- $600 variable costs $300). Hence, the breakeven point is 22,000 units ($6,600,000 + 300).

• Question 486:

  Product A accounts for 75% of a company's total sales revenue and has a variable cost equal to 60% of its selling price. Product B accounts for 25% of total sales revenue and has a variable cost equal to 85% of its selling price. What is the breakeven point given fixed costs of $150,000?

  A. $375,000
  B. $444,444
  C. $500,000
  D. $545,455
  B. $444,444

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  Explanation

• Question 487:

  The Keego Company is planning a $200,000 equipment investment which has an estimated 5-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment.

  

  The net present value for the investment is

  A. $18,800
  B. $218,800
  C. $100,000
  D. $91,743
  A. $18,800

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  Explanation

• Question 488:

  You have just purchased a 15-year, $ 1.000 par value bond. The coupon rate on this bond is 9% annually, with interest being paid each 6 months. If you expect to earn a 12% nominal rate of return on this bond, how much did you pay for it?

  A. $642. 76
  B. $793. 43
  C. $875. 38
  D. $950.75
  B. $793. 43

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  Explanation

• Question 489:

  Which attribute of the product mix corresponds to the number of product lines?

  A. Depth
  B. Consistency
  C. Width
  D. Length
  C. Width

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  Explanation

  The product mix is the product assortment (everything the firm sells). A firm may grow by adding to any attribute of its product mix. The width attribute is the number of product lines

• Question 490:

  A manufacturer produces a product that sells for $10 per unit. Variable costs per unit are $6 and total fixed costs are $1 2. 000. At this selling price, the company earns a profit equal to 10% of total dollar sales By reducing its selling price to $9 per unit, the manufacturer can increase its unit sales volume by 25%. Assume that there are no taxes and that total fixed costs and variable costs per unit remain unchanged It the selling price were reduced to $9 per unit, the profit would be

  A. $3,000
  B. $4,000
  C. $5,000
  D. $6,000
  A. $3,000

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  Explanation