IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 671:

  The risk of a single asset is

  A. Nonmarket risk
  B. Total risk
  C. Portfolio risk
  D. Market risk
  B. Total risk

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  Explanation

  Total risk is the risk of a single assets, whereas market is its risk if is held in a large portfolio of diversified securities. total risk therefore includes diversifiable and undiversifiable risk

• Question 672:

  In which product-mix pricing strategy is it appropriate for the seller to accept any price that exceeds the storage and delivery costs for the product'?

  A. By-product pricing
  B. Optional-product pricing
  C. Captive-product pricing
  D. Product-bundle pricing
  A. By-product pricing

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  Explanation

  A by-product is a product of relatively minor importance generated during the production of one or more other products. Its production entails no additional costs. Any amount received above the storage and delivery costs for a by-product allows the seller to reduce the main products price to make it more competitive

• Question 673:

  A firm's financial risk is a function of how it manages and maintains its debt. Which one of the following sets of ratios characterizes the firm with the greatest amount of financial risk?

  A. High debt-to-equity ratio, high interest-coverage ratio, volatile return on equity.
  B. High debt-to-equity ratio, high interest-coverage ratio, stable return on equity.
  C. Low debt-to-equity ratio, low interest-coverage ratio, volatile return on equity.
  D. High debt-to-equity ratio, low interest-coverage ratio, volatile return on equity.
  D. High debt-to-equity ratio, low interest-coverage ratio, volatile return on equity.

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  Explanation

  A firm with high risk will have a higher debt-to-equity ratio than a low-risk firm, a lower interest coverage, and a volatile return on equity. A higher debt-to-equity ratio poses a greater risk of insolvency. Debt holders must be paid regardless of whether the firm is profitable. Low interest coverage means that the margin of safety of earnings before interest and taxes is small. A volatile return on equity signifies that earnings are unpredictable. Lack of predictability increases risk.

• Question 674:

  Evaluating performance and giving feedback is the final step in the decision-making process. This step involves

  I. Proper delegation of authority.

  II.

  Placement of the solution in a feasible framework. Ill. Effective communication of the decision.

  A. l only.
  B. l and II.
  C. II only.
  D. l,ll,and lll.
  D. l,ll,and lll.

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  Explanation

  The step of evaluating performance and giving feedback is vital to improve future execution of the prior steps or even the decision model itself. The proper delegation of authority is made to the individual responsible for implementing the action to be taken. Performance measurement is then provided for. This process puts the solution into a feasible framework, which assures it will be carried out. Finally, decisions cannot be fully imolemented until they are effectively communicated.

• Question 675:

  Bakker Industries sells three products (Products 611 613. and 615) that it manufactures in a factory consisting of one department Both labor and machine time are applied to the products Bakker's management is planning its production schedule for the next several months. There are labor shortages in the community. Some of the machines will be out of service for extensive overtraining. Available machine and labor time for each of the next 6 months is listed below

  

  It Bakker's strategy is to maximize total profits, what is the total contribution?

  A. $113. 150
  B. $193,500
  C. $215,300
  D. $280.800
  B. $193,500

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  Explanation

• Question 676:

  Brady Corporation has 6,000 shares of 5% cumulative, $100 par value preferred stock outstanding and 200,000 shares of common stock outstanding. Brady's board of directors last declared dividends for the year ended May31, Year 1, and there were no dividends in arrears. For the year ended May31, Year 3, Brady had net income of $1,750,000. The board of directors is declaring a dividend for common shareholders equivalent to 20% of net income. The total amount of dividends to be paid by Brady at May 31, Year 3, is

  A. $350.000
  B. $380.000
  C. $206. 000
  D. $410.000
  D. $410.000

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  Explanation

  If a company has cumulative preferred stock, all preferred dividends for the current and any unpaid prior years must be paid before any dividends can be paid on common stock. The total preferred dividends that must be paid equal $60,000 (6,000 shares x $100 par x 5% x 2 years), and the common dividend is $350,000 ($1,750,000 x 20%), for a total of $410,000.

• Question 677:

  According to the growth-share matrix model for business portfolio analysis, which of the following provide resources for investment in other SBUs?

  A. Stars.
  B. Duson marks.
  C. Cash cows.
  D. Dogs.
  C. Cash cows.

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  Explanation

  Cash cows are strong competitors and cash generators. An SBU that is a cash cow ordinarily enjoys high profit margins and economies of scale. Financing for expansion is not needed, so the SBUs excess cash can be used for investments in other SBUs.

• Question 678:

  The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,0O0 Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Moore Corporation should use in a capital budgeting analysis?

  A. $(85,000)
  B. $(90,000)
  C. $(96,000)
  D. $(105,000)
  D. $(105,000)

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  Explanation

  Initially, the company must invest $105,000 in the machine. Consisting of the invoice price of $90 00. the delivery costs of $6,000, and the installation costs of $9,000.

• Question 679:

  XYZ Corp has 1000 shares outstanding and retained earnings of $25,000. Theoretically! what would you expect to happen to the price of their stock, currently Selling for $50 per Share! if a 20% stock dividend is declared?

  A. Price should increase to $60 per share
  B. Price should decrease to $40 per share.
  C. Price should decrease to $41.67 per share D. Nothing, price should remain at $50.
  C. Price should decrease to $41.67 per share D. Nothing, price should remain at $50.

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  Explanation

  The total market capitalization of 1,000 shares is $50,000. That should remain about the same following the issuance of the 200 shares of stock dividend. Thus, dividing $50,000 by 1,200 shares equals $41.67 per share.

• Question 680:

  As a company becomes more conservative in its working capital policy, it would tend to have a(n)

  A. Decrease in its acid-test ratio.
  B. Increase in the ratio of current liabilities to concurrent liabilities.
  C. Increase in the ratio of current assets to units of output.
  D. Increase in funds invested in common stock and a decrease in funds invested in marketable securities.
  C. Increase in the ratio of current assets to units of output.

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  Explanation

  A conservative working capital policy minimizes liquidity risk by increasing working capital (current assets -- current liabilities). The result is that the company forgoes the potentially higher returns available from using the additional working capital to acquire long-term assets. A conservative working capital policy is characterized by a higher current ratio (current assets + current liabilities) and acid-test ratio (quick assets + current liabilities). Thus, the company will increase current assets or decrease current liabilities. Conservative policy finances assets using long-term or permanent funds rather than short- term sources.