IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 681:

  When determining net present value in an inflationary environment, adjustments should be made to

  A. Increase the discount rate, only.
  B. Increase the estimated cash inflows and increase the discount rate.
  C. Increase the estimated cash inflows but not the discount rate.
  D. Decrease the estimated cash inflows and increase the discount rate.
  B. Increase the estimated cash inflows and increase the discount rate.

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  Explanation

  In an inflationary environment, nominal future cash flows should increase to reflect the decrease in the value of the unit of measure. Also, the investor should increase the discount rate to reflect the increased inflation premium arising from the additional uncertainty. Lenders will require a higher interest rate in an inflationary environment.

• Question 682:

  Topcon Company produces two components:A-1and A-2. The unit throughput contribution margins for A-1 and A-2 are $150 and $300.respectively. Each component must proceed through two processes: Operation 1 and Operation 2. The capacity of Operation 1 is 180 machine hours, with A-1 and A-2 requiring 1 hour and 3 hours, respectively .Furthermore.Tocon can sell only 45 units of A-1 and 100 units of A-2 However, Taconic considering expanding Operation 1's Capacity by 90 machine hours at a cost of $80 per hour. Assuming that Operation 2 has sufficient capacity to handle any additional output from Operation 1, Toucan should produce. Units of A-1 Unties of A-2

  A. 180 0
  B. 45 100
  C. 45 75
  D. 0 60
  C. 45 75

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  Explanation

  A-1's throughput contribution margin per unit of the scarce resource (the internal binding constraint) is $150($150 UCM + 1machining hour) A-2's throughput contribution margin per unit of the scarce resource is $100($300 UCM + 3 machine hours). Consequently, Topcon should produce as much A-1 as it can sell (45 units).If Topcon adds 90 machine hours to increase the capacity of Operation 1 to 270 hours(108+90), it cannot produce assertion units do A-1 because the external binding constraint has been not been relaxed.However,it can produce additional units of A-2 Given that the UCM per machine hour of A-2 is $100 and that the cost is $80 per hour adding capacity to Operation 1 is profitable.Thus,tocon should use 45 machine hour to produce 45 units of A-1 The remaining 225 machine hours (270-45) should be used to produce 75 units (225+ 3 hours) of A-2 The latter amount is within the external binging constraint.

• Question 683:

  A manufacturing company produces plastic utensils for a particular segment at the lowest possible cost. The company is pursuing a cost.

  A. Leadership strategy
  B. Focus strategy
  C. Differentiation strategy
  D. Containment strategy.
  B. Focus strategy

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  Explanation

  A cost focus strategy aims at cost leadership in a particular segment, such as a regional market or a specially product line. The rationale for a focus strategy is that the narrower market can be better served.

• Question 684:

  Motivation is the

  A. Desire and the commitment to achieve a specific goal.
  B. Sharing of goals by supervisors and subordinates.
  C. Extent to which individuals have the authority to make decisions.
  D. Extent of the attempt to accomplish a specific goal
  A. Desire and the commitment to achieve a specific goal.

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  Explanation

  Motivation is the desire to attain a specific goal (goal congruence) and the commitment to accomplish the goal (managerial effort). Managerial motivation is therefore a combination of managerial effort and goal congruence.

• Question 685:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.In order to recover the costs of production tooling and advertising for the breakfast rolls, Gleason's sales of the breakfast rolls would have to be

  A. 37500 units.
  B. 100,000 units.
  C. 60,000 units.
  D. Some amount other than those given.
  B. 100,000 units.

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  Explanation

  Fixed costs of $45,000 ($25,000 + $20,000) should be divided by the unit contribution margin of $45 ($1 .20 selling price -- $.25 -- $30 -- $.20). The unit breakeven point is therefore 100,000 units ($45,000 ?$45).

• Question 686:

  Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the product

  

  The company will also be absorbing $120,000 of additional fixed costs associated with this new product. A corporate fixed charge of $20000 currently absorbed by other products will be allocated to this new product.If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge protectors is

  A. 8,500 units.
  B. 10,000 units.
  C. 15,000 units.
  D. 20,000 units.
  D. 20,000 units.

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  Explanation

• Question 687:

  MS Trucking is considering the purchase of a new piece of equipment that has a net initial investment with a present value of $300,000. The equipment has an estimated useful life of3years. For tax purposes1 the equipment will be fully depreciated a rates of 30%, 40%, and 30% in years one, two, and three, respectively. The new machine is expected to have a $20,000 salvage value. The machine is expected to save the company $170,000 per year in operating expenses. MS Trucking has a 40% marginal income tax rate and a 16% cost of capital. Discount rates for a 16% rate are:

  

  What is the profitability index for the project?

  A. 1.089
  B. 1.106
  C. 1.315
  D. 1.063
  A. 1.089

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  Explanation

  The profitability index is the present value of the future net cash inflows divided by the present value of the net initial investment. The present value of the future net cash inflows is $326,556. Hence, the profitability index is 1.089 ($326,556 $300,000).

• Question 688:

  Members of a firm's sales force should

  A. Be a prima source of intelligence regarding the marketing environment.
  B. Not be expected to gather information regarding developments in the marketplace because their close contact with customers impairs their objectively.
  C. Be used as a source of intelligence regarding the market environment only if no other source is available.
  D. Be trained to communicate marketing intelligence to the firm's intermediaries.
  A. Be a prima source of intelligence regarding the marketing environment.

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  Explanation

  Philip Kilter (Marketing Management) defines marketing intelligence system as "a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment." The members of the firm's sales force should be a primary source of intelligence because of their close contact with customers. Sales agents should be trained to gather relevant information and communicate into appropriate people in the firm.

• Question 689:

  The following data pertain to a 4-year project being considered by Metro Industries:

  A depreciable asset that costs $1 .200.000 will be acquired on January 1. The asset, which is expected to have a $200,000 salvage value at the end of 4 years, qualifies as 3- year property under the Modified Accelerated Cost Recovery

  System (MACPS).

  The new asset will replace an existing asset that has a tax basis of $150,000 and can be sold on the same January 1 for $180,000.

  The project is expected to provide added annual sales of 30,000 units at $20. Additional cash operating costs are: variable, $12 per unit fixed, $90,000 per year.

  A $50,000 working capital investment that is fully recoverable at the end of the fourth year is required.

  Metro is subject to a 40% income tax rate and rounds all computations to the nearest dollar. Assume that any gain or loss affects the taxes paid at the end of the year in which it occurred. The company uses the net present value method to

  analyze investments and will employ the following factors and rates.

  

  4. The overall discounted-cash-flow impact of the working capital investment on Metro's project is

  A. $(2,800)
  B. $(18,000)
  C. $(50,000)
  D. $(59,200)
  B. $(18,000)

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  Explanation

  The working capital investment is treated as a $50,000 outflow at the beginning of the project and a $50,000 inflow at the end of 4 years. Accordingly, the present value of the inflow after 4 years should be subtracted from the initial $50,000 outlay. The overall discounted-cash4low impact of the working capital investment is $18,000 [$50,000-- ($50,000 x .64 PV of $1 at 12% forfour periods)].

• Question 690:

  For capital budgeting purposes, management would select a high hurdle rate of return for certain projects because management

  A. Wants to use equity funding exclusively.
  B. Believes too many proposals are being rejected.
  C. Believes bank loans are riskier than capital investments.
  D. Wants to factor risk into its consideration of projects.
  D. Wants to factor risk into its consideration of projects.

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  Explanation

  Risk analysis attempts to measure the likelihood of the variability of future returns from the proposed investment. Risk can be incorporated into capital budgeting decisions in a number of ways, one of which is to use a hurdle rate (desired rate of return) higher than the firm's cost of capital, that is, a risk-adjusted discount rate. This technique adjusts the interest rate used for discounting upward as an investment becomes riskier. The expected flow from the investment must be relatively larger or the increased discount rate will generate a negative net present value, and the proposed acquisition will be rejected.