IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 801:

  When an organization decides on a course of action that is selected from a group of alternative courses of action, the benefit lost by not choosing the best alternative course of action is the

  A. Expected value.
  B. Incremental cost.
  C. Net realizable value.
  D. Opportunity cost.
  D. Opportunity cost.

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  Explanation

  An opportunity cost is defined as the benefit forgone, for example, the contribution to income, by not selecting the best alternative use of scarce resources. Opportunity costs are not recorded in the accounting records1 but they are important for management decision making.

• Question 802:

  During the most recent fiscal year, Dongata Industries earned net income after tax of $3,288,000. The company paid preferred share dividends of $488,000 and common share dividends of $1,000,000. The current market price of Dogmata's common shares is $56 per share. and the shares are trading at a price-earnings rate of 8. How many common shares does Donate have outstanding?

  A. 350,000
  B. 400,000
  C. 411.000
  D. 469,714
  B. 400,000

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  Explanation

• Question 803:

  The best reason corporation issue Eurobonds rather than domestic bonds is that

  A. These bonds are denominated in the currency of the country in which they are issued.
  B. These bonds are normally a less expensive form of financing because of the absence of government regulation
  C. Foreign buyers more readily accept the issues of both large and small U.S corporations than do domestic investors
  D. Eurobonds carry no foreign exchange risk
  B. These bonds are normally a less expensive form of financing because of the absence of government regulation

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  Explanation

  International bonds are of two types: foreign bonds and Eurobonds. Foreign bonds are denominated in the currency of the nation in which they are sold. Eurobonds are denominated in a currency other than that of the nation where they are sold. Foreign bonds issued in the United States and denominated in dollars must be registered with the SEC, but such extensive disclosure is not required in most European nations. Thus, an American company may elect to issue Eurobonds denominated in dollars in a foreign nation because of the convenience of not having to comply with governmental registration requirements.

• Question 804:

  Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of

  A. Activity-based management
  B. Theory of constraints.
  C. Total quality management.
  D. Value engineering.
  D. Value engineering.

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  Explanation

  Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of value engineering.

• Question 805:

  Jorelle Company's 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 traditional payback period for the investment proposal is

  A. Over5years.
  B. 2. 23 years.
  C. 1.65 years.
  D. 2. 83 years.
  B. 2. 23 years.

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  Explanation

• Question 806:

  A company has just borrowed $2 million from a bank. The stated rate of interest is 10%. If the loan is discounted and is repayable in one year, the effective rate on the is approximately

  A. 8.89%
  B. 9.09%
  C. 10.00%
  D. 11.11%
  D. 11.11%

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  Explanation

  If the loan is discounted, the borrower receives the face amount minus the prepaid interest. Thus, the borrower will receive proceeds of $1,800,000 [$2,000,000 - ($2,000,000 x 10%)]. The effective interest rate is 11.11% ($200,000 ?$1,800,000).

• Question 807:

  Activity scheduling information for the installation of a new computer system is given below.

  

  For this project, the critical path is

  A. A-C
  B. B-E
  C. A-D-E
  D. B-D-C
  C. A-D-E

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  Explanation

  The critical path is the longest path because it defines the minimum duration of the project. A-D-E(4+6+5 -15)is the critical path.

• Question 808:

  All of the following costs are relevant to a decision to accept or reject an order except

  A. Differential costs.
  B. Out-of-pocket costs.
  C. Replacement costs.
  D. Sunk costs.
  D. Sunk costs.

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  Explanation

  A sunk cost cannot be avoided because either the expenditure has occurred, or an irrevocable decision to incur the cost has been made. Sunk costs are irrelevant to management decision-making because they cannot vary with the option selected.

• Question 809:

  In order to increase production capacity, Gunning Industries is considering replacing an existing production machine with a new technologically improved machine effective January 1. The following information is being considered by Gunning

  Industries:

  The new machine would be purchased for $160,000 in cash. Shipping, installation, and testing would cost an additional $30,000.

  The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit. Incremental operating costs include $30 per unit in variable costs and total fixed costs of $40,000 per year.

  The investment in the new machine will require an immediate increase in working capital of $35,000. This cash outflow will be recovered after 5 years.

  Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of 5 years and zero salvage value.

  Gunning is subject to a 40% corporate income tax rate. Gunning uses the net present value method to analyze investments and will employ the following factors and rates:

  

  The acquisition of the new production machine by Gunning Industries will contribute a discounted net-of-tax contribution margin of

  A. $242,624
  B. $303,280
  C. $363,936
  D. $454,920
  D. $454,920

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  Explanation

  The new machine will increase sales by 20,000 units a year. The increase in the pretax total contribution margin will be $200,000 per year [20,000 units x ($40 SP -- $30 VC)], and the annual increase in the after tax contribution margin will be $120,000 [$200,000 x (1.0-- .4)]. The present value of the after-tax increase in the contribution margin over the 5-year useful life of the machine is $454,920 ($120,000 x 3. 791 PV o f an ordinary annuity for 5 years at 10%).

• Question 810:

  Jorelle Company's 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 accounting rate of return on the average investment proposal is

  A. 12. 0%
  B. 17. 2%
  C. 28.0%
  D. 34. 4%
  D. 34. 4%

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  Explanation