IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 611:

  Pazer, Inc produces portable televisions. Pazer's product manager proposes to increase the cost structure by adding voice-activated volume/channel controls to the television, and also adding three additional repair personnel to deal with products returned due to defects, Are these costs value-added or nonvalue-added? Cost of Voice-Activated Controls Cost of Additional Repair Personnel

  A. Value-added Value-added
  B. Value-added Nonvalue-added
  C. Norivalue-added Value-added
  D. Nonvalue-added Nonvalue-added
  B. Value-added Nonvalue-added

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  Explanation

  The additional cost of the voice-activated controls as a value-added cost because it provides new functionality for the consumer. The cost of additional repair personnel, on the other hand, is nonvalue-added since it is incurred to address deficiencies in quality.

• Question 612:

  A $1,000 par value convertible bond is selling at $1,200. If the conversion ratio is 20, what is the conversion price?

  A. $3846
  B. $41.60
  C. $50.00
  D. $60.00
  C. $50.00

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  Explanation

  The conversion price is calculated by duding the par value of the bond by the conversion ratio. Thus, the conversion price is $50 ($1,000 20).

• Question 613:

  In general, it is more expensive for a company to finance with equity capital than with debt capital because

  A. Long-term bonds have a maturity date and must therefore be repaid in the future.
  B. Investors are exposed to greater risk with equity capital.
  C. The interest on debt is a legal obligation
  D. Equity capital is in greater demand than debt capital
  B. Investors are exposed to greater risk with equity capital.

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  Explanation

  Providers of equity capital are exposed to more risk than are lenders because the firm is not obligated to pay them a return. Also, in case of liquidation, creditors are paid before equity investors. Thus, equity financing is more expensive than debt because equity investors require a higher return to compensate for the greater risk assumed.

• Question 614:

  Which one of the following is a disadvantage of the use of convertible bonds as a form of financing?

  A. Less restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.
  B. Convertible bonds defer equity financing until the stock price is higher.
  C. Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.
  D. The investor may choose motto convert the convertible bonds.
  D. The investor may choose motto convert the convertible bonds.

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  Explanation

  A conversion feature permits bondholders to convert their bonds into common stock at some future time if the stock price rises. This provision is sometimes incorporated into a bond contract to entice investors to lend money to the issuer at a lower interest rate. Another purpose of issuing convertible bonds is to obtain equity financing at a time when market prices are unfavorable. Issuing convertible bonds is tantamount to selling the stock at a higher price, assuming that bondholders eventually exercise their option to convert. The disadvantage to the corporation is that stock prices may never reach the conversion price, and bondholders will not convert their bonds into stock. The corporation will then have to make interest and principal payments.

• Question 615:

  Which of the following is not a type of process?

  A. Make-to-stock.
  B. Make-to-order.
  C. Buffer
  D. Hybrid
  C. Buffer

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  Explanation

  A buffer in the context of process analysis is a quantity of work-in-process inventory that allows some stage(s) of the overall process to continue operating when an earlier stage breaks down.

• Question 616:

  Jorelle Company financial staff has been requested to review a proposed investment in new capital equipment. Applicable financial data is presented below. There will be no salvage value at the end of the investment's life and, due to realistic depreciation practices, it is estimated that the salvage value and net book value are equal at the end of each year.. All cash flows are assumed to take place at the end of each year. For investment proposals, Jorelle uses a 12% after-tax target rate of return.

  

  Discounted Factors for a 12% Rate of Return

  

  The net present value for the investment proposal is

  A. $106,160
  B. $(97,970)
  C. $356,160
  D. $96,560
  A. $106,160

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  Explanation

  The NPV is the sum of the present values of all cash inflows and outflows associated with the proposal. If the NPV is positive, the proposal should be accepted. The NPV is determined by discounting each expected cash flow using the appropriate 12% interest factor for the present value of $1. Thus, the NPV is $106,160 [(.89 x $120,000) + (.80 x $108,000) + (.71 x $96,000) + (.64 x $84,000) + (.57 x $72,000) --(1.00 x $250,000)].

• Question 617:

  Of the following decisions, capital budgeting techniques would least likely be used in evaluating the

  A. Acquisition of new aircraft by a cargo company.
  B. Design and implementation of a major advertising program.
  C. Trade for a star quarterback by a football team.
  D. Adoption of a new method of allocating nontraceable costs to product lines.
  D. Adoption of a new method of allocating nontraceable costs to product lines.

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  Explanation

  Capital budgeting is the process of planning expenditures for investments on which the returns are expected to occur over a period of more than 1 year. Thus, capital budgeting concerns the acquisition or disposal of long-term assets and the financing ramifications of such decisions. The adoption of a new method of allocating nontraceable costs to product lines has no effect on a company's cash flows, does not concern the acquisition of long- term assets, and is not concerned with financing. Hence, capital budgeting is irrelevant to such a decision.

• Question 618:

  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 619:

  A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of (Column 1) and an APR of (Column 2).

  Column 1 Column 2

  A. 16. 08% 15%
  B. 14. 55% 16. 08%
  C. 12. 68% 15%
  D. 15% 14. 55%
  A. 16. 08% 15%

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  Explanation

  The annual percentage rate is easy to compute: multiply the 1.25% monthly rate times 12 months to arrive at 15%. The compounded rate would be slightly higher. Thus, given the alternatives, answer (A) is the 1only acceptable alternative where the compounded rate is greater than the 15% APR.

• Question 620:

  A company has recently introduced total quality management (TQM). The company's top management wants to determine a new and innovative approach to foster total participation throughout the company. Management should

  A. Seek isolation from all distractions in order to think the problem through.
  B. Bring the employees together for a brainstorming session.
  C. Rely on them selves to develop a new approach.
  D. Use a disciplined problem-solving approach.
  B. Bring the employees together for a brainstorming session.

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  Explanation

  Group decisions tend to be more creative than individual decisions. One creative approach is brain- storming, which breaks down broadly based problems into their essentials. It is an unstructured approach that relies on the spontaneous contribution of ideas from all members of a group.