IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 491:

  A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of this stock could decrease over the short run. The company could hedge against the possible decline in the stock's market price by

  A. Purchasing a call option on that stock
  B. Purchasing a put option on that stock
  C. Selling a put option on that stock
  D. Obtaining a warrant option on that stock.
  B. Purchasing a put option on that stock

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  Explanation

  A put option is the right to sell stock at a given price within a certain period. If the market price falls, the put option may allow the sale of stock at a price above market, and the profit of the option holder will be the difference between the price stated in the put option and the market price, minus the cost of the option, commissions, and taxes. The company that issues the stock has nothing to do with put( and call) options

• Question 492:

  Falcon AG, a German heavy machinery manufacturer, is planning to expand its manifesting base in the US. and has been offered a special loan of $25 million by the state of Georgia. The loan is for a term of 5 years and carries an interest of 4% to be paid annually Falcons normal borrowing rate for 5-year borrowing is 6%. What is the value of this special loan to Falcon?

  A. $4. 212 million.
  B. $2113 million.
  C. $6325 million,
  D. $20.788 million.
  B. $2113 million.

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  Explanation

  The value of the special loan can be calculated by computing the NPV of the loan using Falcon's normal borrowing rate of 6% for 5 periods. NPV equals $25 million minus PV of interest payments minus PV of principal. Thus, the NPV is $2. 1 13 million ($25 million --[($25 million x .04 annual interest) x4. 212 PV of an annuity for Syrsat6%]-- ($25 millionx747PVof$1 in5yrs. at6%]}.

• Question 493:

  If Williams, Inc. needs a total of $1,000,000. the firm's weighted-average cost of capital would be

  A. 6. 8%
  B. 4. 8%
  C. 6. 5%
  D. 27. 4%
  A. 6. 8%

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  Explanation

  The cost of the bonds is given as 4. 8%. The cost of the preferred stock is 8% ($8 dividend + $100). the cost of new common stock is 7. 6% ($7 dividend ` $92 proceeds), and the cost of the retained earnings is 7% ($7 dividend ?$100 market

  price). These four costs are then weighted by the preferred capital structure ratios, a process that requires subdividing the common stock portion into retained earnings of $100.000 (10% of capital) and new common stock of $400 000 (40% of

  capital):

  30%x4. 8% = 1.44%

  20% x 8.0% = 1.60%

  40%x7. 6% = 3. 04%

  10% x 7. 0% .= .70%

  Total 678%

  Rounding to the nearest tenth results in the correct answer of 6. 8%. DQZ Telecom is considering a project for the coming year that will cost $50 million. DQZ plans to use the following combination of debt and equity to finance the investment.

  Issue $15 million of 20-year bonds at price of $101 , with a coupon rate of 8%, and flotation costs of 2% of par

  Use $35 million of funds generated from earnings.

  The equity market is expected to earn 12%. U.S. Treasury bonds are currently yielding 5%. The beta coefficient for DQZ Es estimated to be .60. DOZ is subject to an effective corporate income tax rate of 40%.

• Question 494:

  A decision maker is operating in an environment in which all the facts surrounding a decision are known exactly, and each alternative is associated with only one possible outcome. The environment is known as

  A. Certainly.
  B. Risk.
  C. Uncertainly.
  D. Probability.
  A. Certainly.

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  Explanation

  The less the variability of the future results of a decision, the smaller the risk involved. If each choice is associated with only one possible outcome, no variability exists. Such a condition is one of certainly (zero variance).

• Question 495:

  The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified the four sources of funds given below.

  1. Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates that the firm would save $24,000 in collection expenses over the year. Assume the fee and interest are not deductible in advance.

  2. Borrow $110,000 from a bank at 12% interest A 9% compensating balance would be required.

  3. Issue $110,000 of 6-month commercial paper to net $100,000 (New paper would be issued every 6 months.)

  4. Borrow $125,000 from a bank on a discount basis at 20%. No compensating balance would be required. Assume a 360-day year in all of your calculations. Assuming a 360-day year and that CyberAge continues paying on the last day of the credit period, the company's weighted-average annual interest rate for trade credit (ignoring the effects of compounding) for these two vendors is

  A. 27. 0%
  B. 25. 2%
  C. 28.0%
  D. 30.2%
  B. 25. 2%

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  Explanation

• Question 496:

  A contractual arrangement that gives the owner the right to buy or sail an asset at a hexed price at any moment in time before r on a specified date is a (n)

  A. European option.
  B. Foreign option,
  C. Future option.
  D. American option.
  D. American option.

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  Explanation

  An American upon is a contractual arrangement that gives the owner the right to buy or sell an asset at a axed price at any moment in time before or on a specified date.

• Question 497:

  The technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax net income by the average investment cost is called the

  A. Bail-out payback method.
  B. Internal rate of return method.
  C. Profitability index method.
  D. Accounting rate of return method.
  D. Accounting rate of return method.

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  Explanation

  The accounting rate of return (also called the unadjusted rate of return or book value rate return) measures investment performance by dividing the accounting net income by the average investment in the project. This method ignores the time value of money.

• Question 498:

  In smaller businesses in which the management of cash is but one of numerous functions performed by the treasurer. Various cost incentives and diversification arguments suggest that surplus cash should be invested in

  A. Commercial paper.
  B. Bankers' acceptances.
  C. Money market mutual funds.
  D. Corporate bonds.
  C. Money market mutual funds.

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  Explanation

  A small firm with surplus cash should invest for the highest return and lowest risk. The ability' to convert the investment into cash without a loss of principal is also important. Money market mutual funds invest in .y market certificates such as treasury bills, negotiable CDs, and commercial paper. Because of diversification, these mutual funds are superior to any single instrument.

• Question 499:

  Which of the following is accomplished during the process of planning the marketing program and mix?

  A. Organizing resources
  B. A SWOT analysis
  C. Determining when, where, how, and by whom plans will be executed
  D. Conducting sales variance analysis
  B. A SWOT analysis

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  Explanation

  Planning the marketing program and mix is the process of determining how marketing strategies formulated in accordance with a SWOT (strengths, weaknesses, opportunities, and threats) analysis may be implemented. The firm must decide what resources should be devoted to the marketing effort, for example, budgeting outlays as a percentage of sales. Total expenditures may be increased to secure a larger market share. The next step is to locate the budgeted resources to the elements of the marketing mix(the 4Ps of 4 Cs of marketing)

• Question 500:

  Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit.

  

  During the next year, KB-96 sales are expected to be 10000 units. All of the costs will remain the same except that fixed manufacturing overhead will increase by 20% and direct materials will increase by 10%. The selling price per unit for next year will be

  A. $620.000
  B. $750,000
  C. $1,080,000
  D. $1,110,000
  C. $1,080,000

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  Explanation