IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 761:

  AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are written on one share of QQ Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assuming the present value of the exercise price is $36 and the value of the call is $4. 50. the value of the put in accordance with the put-call panty theorem is

  A. $450
  B. $400
  C. $50
  D. $0
  C. $50

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  Explanation

• Question 762:

  Vince, Inc. has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should Vince consider in pricing the device?

  l.

  Quality of the new device Il. Life of the new device Ill. Customers' relative preference for quality compared with price

  A. I and II only.
  B. I and Ill only.
  C. II and Ill only.
  D. I, II, and Ill.
  D. I, II, and Ill.

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  Explanation

  Product pricing is a function of consumer demand, competitive factors, and the seller's cost structure and profit objectives. Thus, the seller must consider the trade-off between the price and quality effects on demand. A better-quality' product, for example, one with a relatively long useful life, is more costly to produce and therefore sells for a higher price, which in turn reduces the amount demanded.

• Question 763:

  The value creation chain

  A. Consists of activities of a firm that incur costs.
  B. Excludes support activities.
  C. Treats infrastructure activities as primary.
  D. Includes such outbound logistics activities as human resources.
  A. Consists of activities of a firm that incur costs.

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  Explanation

  The value creation chain consists of the activities of a firm that create customer value and incur costs. The following are the primary activities and the four support activities in Michael E. Porter's model: (1) inbound logistics activities involve the firm's capture of materials to be processed; (2) operations activities are conversion 1processes; (3) outbound logistics activities include shipment of products; (4) marketing and sales activities are the promotion and sale of final products;

  (5) service activities provide customer service; and (6)the four support activities are infrastructure (e.g., administration, finance, and planning), procurement, human resources, and technology.

• Question 764:

  A company wants to open a new store in one of three nearby shopping malls. In Mall A. the rent will be $300,000 per year. In Mall B, the rent will be 4% of gross revenues In Man C, rent will be $150,000 per year plus 3% of gross revenues. Assume that revenues and all other elements under consideration are the same for all three malls. What is the maximum level of revenues at which Mall C will be the most desirable of the three options?

  A. $149,999
  B. $5,000,000
  C. $15,000,000
  D. Man C will never be the most desirable choice.
  D. Man C will never be the most desirable choice.

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  Explanation

• Question 765:

  The ratio of fixed costs to the unit contribution margin is the?

  A. Breakeven point
  B. Profit margin.
  C. Operating profit
  D. Contribution margin ratio.
  A. Breakeven point

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  Explanation

  The breakeven point is the level of sales at which revenues equal the sum of variable and fixed costs. Consequently. the contribution margin equals fixed costs at the breakeven point. Because this relationship is true, the breakeven point in units sold can be determined by dividing fixed costs by the difference between unit selling price and unit variable cost (unit contribution margin)

• Question 766:

  A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the demand for the company's only product, the Widget, have never been predictable. Lately, the company's market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is the

  A. Variable cost component of the full cost.
  B. Unstable contribution margin.
  C. Fixed cost component of the full cost.
  D. Drop in the incremental cost of the units in the increased sales volume.
  C. Fixed cost component of the full cost.

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  Explanation

  Fixed costs remain fixed in total at different activity levels. Thus, unit fixed cost will vary inversely with the activity level. The use of full cost pricing results in a lowering of unit fixed cost used as a basis for unit price as sales increase. The consequence is a reduction of the unit sales price (assuming a constant unit profit margin is maintained). Total revenues may remain approximately the same as sales volume increases.

• Question 767:

  One of the major assumptions limiting the reliability of breakeven analysis is that

  A. Efficiency and productivity will continually increase.
  B. Total variable costs will remain unchanged over the relevant range.
  C. Total fixed costs will remain unchanged over the relevant range.
  D. The cost of production factors varies with changes in technology.
  C. Total fixed costs will remain unchanged over the relevant range.

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  Explanation

  The inherent simplifying assumptions used in CVP analysis are the following: Costs and revenues are predictable and are linear over the relevant range; variable costs change proportionally with activity level; changes in inventory are insignificant in amount fixed costs remain constant over the relevant range of volume; prices remain fixed; production equals sales; there is a relevant range in which the various relationships are true for a given time span; all costs are either fixed or variable; productive efficiency is constant; costs vary only with changes in sales volume; and there is a constant mix of products (or only one product).

• Question 768:

  When making predictions about costs, what makes a cost relevant to a decision?

  A. Cost has already been paid.
  B. Cost must vary between alternatives.
  C. Cost must be paid in the future.
  D. Cost must both vary between alternatives and be paid in the future.
  D. Cost must both vary between alternatives and be paid in the future.

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  Explanation

  To be relevant to a decision, a cost must vary between alternatives and be paid or incurred in the future.

• Question 769:

  The proper discount rate to use in calculating certainty equivalent net present value is the

  A. Risk-adjusted discount rate.
  B. Cost of capital.
  C. Risk-free rate.
  D. Cost of equity capital.
  C. Risk-free rate.

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  Explanation

  Rational investors choose projects that yield the best return given some level of risk. If an investor desires no risk, that is, an absolutely certain rate of return, the risk4ree rate is used in calculating net present value. The risk-free rate is the return on a risk-free investment such as government bonds. Certainty equivalent adjustments involve a technique directly drawn from utility theory. It forces the decision maker to specify at what point the firm is indifferent to the choice between a sum of money that is certain and the expected value of a risky sum.

• Question 770:

  Lyman Company has the opportunity increase annual sales $100,000 by selling to a new. riskier group of customers The uncollectible expense is expected to be 15%, and collection costs will be 5%. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Lyman should accept this opportunity. the company's after-tax profits would increase by

  A. $6,000
  B. $10,000
  C. $10200
  D. $14,400
  A. $6,000

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  Explanation