IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 811:

  Which one of the following would increase the networking capital ofa firm?

  A. Cash payment of payroll taxes payable.

  B. Purchase of a new plant financed by a 20-year mortgage.

  C. Cash collection of accounts receivable.

  D. Refinancing a short-term note payable with a two-year note payable.

  Correct Answer: D

  Networking capital equals current assets minus current liabilities. Refinancing a short- term 11note with a two-year note payable decreases current liabilities, thus increasing working capital.

• Question 812:

  A firm's current ratio is 2to 1. Its bond indenture states that its current ratio cannot fall below 1.5 to 1.11 current liabilities are $200,000, the maximum amount of new short- term debt the firm can assume in or deer to finance invent Tory with out defaulting is

  A. $200,000

  B. $66,667

  C. $266,667

  D. $150,000

  Correct Answer: A

  If current liabilities are $200,000 and the current ratio (current assets/current liabilities) is 2.0, current assets must be $400,000. If short-term debt is used to finance new inventory, current assets and current liabilities will increase by the same amount. The amount of new debt corresponding to a current ratio of 1.5 maybe determined from the following formula equating current assets and current liabilities (let X= new inventory and new debt):

  

• Question 813:

  All of the following are inventory carrying costs except

  A. Storage.

  B. Insurance.

  C. Opportunity cost of inventory investment.

  D. Inspections.

  Correct Answer: D

  Inventory carrying costs are incurred to hold inventory. Examples include the costs of storage, insurance, security, inventory taxes, depreciation or rent of warehouse facilities, obsolescence and spoilage, and the opportunity cost of inventory investment. Inspection costs are not related to the length of time inventory is held. They are costs of taking delivery and are best classified as ordering costs.

• Question 814:

  An automated clearinghouse (ACH) electronic transfer is a(n) A. Electronic payment to a company's account at a concentration bank.

  B. Check that must be immediately cleared by the Federal Reserve Bank.

  C. Computer-generated deposit ticket veiling deposit of funds.

  D. Check-like instrument drawn against the pay or and not against the bank.

  Correct Answer: A

  An ACH electronic funds transfer (EFT) is an electronic payment to a company's account at a concentration bank. A concentration bank is a large bank to which a company transfers funds from local depository banks. These local banks operate the company's lockboxes and thus serve as collection points. The transfer of funds to the concentration bank allows the company to take advantage of economies of scale in cash management. The use of Ache facilitates concentration banking. Aches are electronic networks operated by the Federal Reserve (except for the New Lock regional ACH association) that guarantee 1-day clearing.

• Question 815:

  All of the following are valid reasons flora business to hold cash and marketable securities except to

  A. Sati's N compensating balance requirements.

  B. Maintain adequate cash needed for transactions.

  C. Meet future needs.

  D. Earn maximum returns on investment assets.

  Correct Answer: D

  A company will hold cash and marketable securities to facilitate business transactions; cash is a medium of exchange. Cash and near-cash items are also held to meet future needs, to satiety compensating balance requirements imposed by lenders, and to provide a precautionary balance for securely purposes. Cash is usually not held in an attempt to earn maximum returns on investment because cash and marketable securities are not 1usually the hajjes paying investments.

• Question 816:

  A company serves as a distributor of products by ordering finished products once a quarter and using that inventory to accommodate the demand over the quarter. If it plans to ease its credit policy for customers, the amount of products ordered for its inventory every quarter will be

  A. Increased to accommodate higher sales levels.

  B. Reduced to offset the increased cost of carrying accounts receivable.

  C. Unaffected if safety stock is part of the current quarterly order.

  D. Unaffected if the JIT inventory control system is used.

  Correct Answer: A

  Relaxing the credit policy for customers will lead to increased sales because more people will be eligible for more credit. As sales increase, purchase orders wi II increase to accommodate the higher sales levels.

• Question 817:

  Hendrix, Inc. is interested in purchasing a $100 U.S. Treasury bill andwas presented with the following options:

  

  If Hendrix wishes to buy the Treasury bill at the lowest purchasing price, which option should be chosen, assuming a 360-day year?

  A. Option 1.

  B. Option 2.

  C. Option 3.

  D. Option 4.

  Correct Answer: B

  To determine the amount of interest the lender will earn, the 3.5% discount rate is multiplied by the face amount of the Treasury bill. The interest on this Treasury bill is $3.50 (3.5% x 1 year x $100); thus, the 1purchase price is $96.50 ($100 -- $3.5).

• Question 818:

  Determining the amount and timing of conversions of marketable securities to cash is a critical element of a financial manager's performance. In terms of the rate of return forgone on converted securities and the cost of such transactions, the optimal amount of cash to be raised by selling securities is

  A. Inversely related to the rate of return forgone and directly related to the cost of the transaction.

  B. Directly related to the rate of return forgone and directly related to the cost of the transaction.

  C. Directly related to the rate of return forgone and inversely related to the cost of the transaction.

  D. Inversely related to the rate of return forgone and inversely related to the cost of the transaction.

  Correct Answer: A

  The optimal amount of cash to be raised by selling securities is calculated by a formula similar to that used to determine the economic order quantity for inventory.

  

  The optimal amount of cash to be raised by selling securities is inversely related to the rate of return forgone (opportunity cost) and directly related to the cost of the transaction.

• Question 819:

  All decisions by financial managers should be driven by the primary goal to

  A. Maximize revenues.

  B. Minimize fixed costs and variable costs.

  C. Stabilize growth.

  D. Maximize stockholder wealth

  Correct Answer: D

  The objective of the firm is to take those actions within legal and ethical limits that will maximize the stockholders' wealth, i.e., the price per share of common stock. The market price of the stock is largely I the result of the firm's investment and financing decisions.

• Question 820:

  A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of (Column 1) and an APR of (Column 2).

  Column 1 Column 2

  A. 16.08% 15%

  B. 14.55% 16.08%

  C. 12.68% 15%

  D. 15% 14.55%

  Correct Answer: A

  The annual percentage rate is easy to compute: multiply the 1.25% monthly rate times 12 months to arrive at 15%. The compounded rate would be slightly higher. Thus, given the alternatives, answer (A) is the 1only acceptable alternative where the compounded rate is greater than the 15% APR.