IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 811:

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

  A. Increase in the ratio of current liabilities to concurrent liabilities.
  B. Decrease in the operating cycle.
  C. Decrease in the quick ratio.
  D. Increase in the ratio of current assets to concurrent assets.
  D. Increase in the ratio of current assets to concurrent assets.

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  Explanation

  A conservative working capital policy results in an increase in working capital (current assets -- current liabilities). It is typified by a reduction in liquidity risk. Increasing the current ratio, whether by decreasing current liabilities or increasing current assets1 minimizes the risk that the company will not be able to meet its obligations as they fall due. Thus, an increasing ratio of current to concurrent assets means that a company is forgoing the potentially higher returns on long-term assets in order to guard against short- term cash flow problems.

• Question 812:

  The dominant firm in a market pursues a market-leader strategy. This strategy may involve

  A. Holding the market stable to avoid attracting new competitors
  B. A flank defense to strengthen the firm's brand
  C. Sending market signals as a mobile defense
  D. Innovations as an offensive strategy
  D. Innovations as an offensive strategy

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  Explanation

  Constant innovation to improve products and services, control costs, and increase distribution effectiveness is the basis for a good offensive strategy. The leader must continuously improve the value offered to customers.

• Question 813:

  The cost of using FLF Corporation retained earnings for financing is

  A. 5%
  B. 9%
  C. 10%
  D. 15%
  D. 15%

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  Explanation

• Question 814:

  A firm has daily cash receipts of $300000. A commercial bank has offered to reduce the collection time by 2 days. The bank requires a monthly fee of $3000 for providing this service. If the money market rates will average 11% during the year, the annual pretax income (loss) from using the service is

  A. $(30,000)
  B. $30,000
  C. $66,000 D. $63,000
  B. $30,000

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  Explanation

  Even that collections will be accelerated by2 days, at the rate of $300000 per day, the firm will have an additional $600,000 to invest. At 11%, the interest earned will be $66,000 per year. However1 the bank will charge $36,000 ($3,000 per month x 12 months) for its services. Thus, the firm will increase its pretax income by $30000 ($66000-- $36J00).

• Question 815:

  The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; twill cost $6,000 to transport to Moore's plant and $9,000 to install. It is seated that the machine will last 10 years. and it Es expected to have an estimated salvage value of $5,000. 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 ha a marginal tax rate of 40%. What is the net cash flow for the third year that Moore Corporation should use in a capital budgeting analysis?

  A. $68,400
  B. $68,000
  C. $64,200
  D. $79,000
  A. $68,400

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  Explanation

  The company will receive net cash inflows of $50 per unit ($500 selling price -- $450 of variable costs), or a total of $100,000 per year. This amount will be subject to taxation, but, for the first 5 years. there will be a "depreciation deduction of $21,000 per year ($105,000 cost divided by 5 years). Therefore, deducting the $21,000 of depreciation expense from the $ 100.000 of contribution margin will result in taxable income of $79,000. After income taxes of $31,600 ($79,000 x 40%), the net cash flow in the third year is $68,400 ($100,000 - $31,600).

• Question 816:

  Which of the following classes of securities are listed in order from lowest risk/opportunity for return to highest risk opportunely for return?

  A. U.S. Treasury bonds; corporate first mortgage bonds; corporate income bonds; preferred stock.
  B. Corporate income bonds; corporate mortgage bonds; coverable preferred stock subordinated debentures.
  C. Common stock corporate first mortgage bonds; corporate second mortgage bonds; corporate income bonds.
  D. Preferred stock common stock corporate mortgage bonds; corporate debentures.
  A. U.S. Treasury bonds; corporate first mortgage bonds; corporate income bonds; preferred stock.

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  Explanation

  The general principle is that risk and return are directly correlated. U.S. Treasury securities are backed by the full faith and credit of the federal government and are therefore the least risky form of investment. However, their return is correspondingly lower. Corporate first mortgage bonds are less risky than income bonds or stock because they are secured by specific property. In the event of default, the bondholders can have the property sold to satisfy their claims. Holders of first mortgages have rights paramount to those of any other parties, such as holders of second mortgages. Income bonds pay interest only in the event the corporation earns income. Thus1 holders of income bonds have less risk than shareholders because meeting the condition makes payment of interest mandatory. Preferred shareholders receive dividends only if they are declared, and the directors usually have complete discretion in this matter. Also, shareholders have claims junior to those of debt holders if the enterprise is liquidated.

• Question 817:

  When a firm prepares financial reports by using absorption costing,

  A. Profits will always increase with increases in sales.
  B. Profits will always decrease with decreases in sales.
  C. Profits may decrease with increased sales even if there is no change in selling prices and costs.
  D. Decreased output and constant sales result in increased profits.
  C. Profits may decrease with increased sales even if there is no change in selling prices and costs.

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  Explanation

  In an absorption costing system, fixed overhead costs are included in inventory When sales exceed production, more overhead is expensed under absorption costing due to fixed overhead carried over from the prior inventory. If sales increase over production, more than one period's overhead is recognized as expense. Accordingly, if the increase in overhead expensed is greater than the contribution margin of the increased units sold, profit may be lower with an increased level of sales.

• Question 818:

  When the number of units manufactured increases, the most significant change in average unit cost will be reflected as

  A. An increase in the nonvariable element.
  B. A decrease in the variable element.
  C. A decrease in the nonvariable element.
  D. An increase in the semivariable element.
  C. A decrease in the nonvariable element.

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  Explanation

  As production increases or decreases, the most significant change in the average unit cost will occur in the fixed (nonvariable) cost element. When production increases, the average cost of the nonvariable element per unit will decrease because total fixed cost is constant.

• Question 819:

  Jackson Distributors sells to retail stores on credit terms of 2/10, net 30. Daily sales average 150 unit's ate price of $300 each. Assuming that all sales are on credit and 60% of customers take the discount and pay on day 10 while the rest of the customers pay on day 30, the amount of Jackson's accounts receivable is

  A. $1,350,000
  B. $990,000
  C. $900,000
  D. $810,000
  D. $810,000

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  Explanation

  The firm has daily sales of $45,000 consisting of 150 units at $300 each. Eon 30 days, sales total $1 350,000. Fortis percent of these sales, or $540,000, will be uncollected because customers do not take their discounts. The remaining 60%, or $810,000, will be paid within the discount period. However, by the end of 30 days, only 2/3 of the $810,000 will be collected because the sales from days 21 through 30 are still within the discount period. Therefore, an additional $270,000 ($810,000--$540,000) will still be uncollected after the 30th day, but will be subject to a discount. In total, the average receivable balance is $810,000, consisting of $540,000 on which no discount will be taken and $270,000 that will be paid within the discount period.

• Question 820:

  On January 1, Scott Corporation received a $300,000 line of credit at an interest rate of 12% from Main Street Bank and drew down the entire amount on February 1. The line of credit agreement requires that an amount equal to 15% of the loan be deposited into a compensating balance account. What is the effective annual cost of credit for this loan arrangement?

  A. 11.00%
  B. 12. 00%
  C. 12. 94%
  D. 14. 12%
  D. 14. 12%

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  Explanation