IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 861:

  Which form of product-mix pricing applies to products that must be used with a main product?

  A. Captive-product pricing.
  B. By-product pricing.
  C. Product-bundle pricing
  D. Optional-product pricing.
  A. Captive-product pricing.

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  Explanation

  Captive-product placing applies to products that must be used with a main product, such as razor blades with a razor. Often, the main product is relatively cheap, but the captive products have high markups.

• Question 862:

  The after-tax cost to FLF Corporation of the new bond issue is

  A. 4%
  B. 6%
  C. 10%
  D. 14%
  B. 6%

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  Explanation

• Question 863:

  Determining the appropriate level of working capital for firm requires

  A. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance these assets.
  B. Changing the capital structure and dividend policy for the firm.
  C. Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than long-term debt.
  D. Offsetting the profitability of current assets and current liabilities against the probability of technical insolvency.
  D. Offsetting the profitability of current assets and current liabilities against the probability of technical insolvency.

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  Explanation

  A company must maintain a level of working capital sufficient to pay bills as they come due. Failure to do so is technical insolvency and can result in involuntary bankruptcy. Unfortunately, holding current assets for purposes of paying bills is not profitable for a company because they usually offer a low return compared with longer-term investments. Thus, the skillful management of working capital requires a balancing of a firm's desire for profit with its need for adequate liquidity.

• Question 864:

  When the risks of the individual components of a project's cash flows are different, an acceptable procedure to evaluate these cash flows is to

  A. Divide each cash flow by the payback period.
  B. Compute the net present value of each cash flow using the firm's cost of capital.
  C. Compare the internal rate of return from each cash flow to its risk.
  D. Discount each cash flow using a discount rate that reflects the degree of risk.
  D. Discount each cash flow using a discount rate that reflects the degree of risk.

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  Explanation

  Risk-adjusted discount rates can be used to evaluate capital investment options. If risks differ among various elements of the cash flows, then different discount rates can be used for different flows.

• Question 865:

  Which of the following activities would likely not be a consideration in strategic planning?

  A. New product development
  B. Capital budgeting
  C. Mergers
  D. Materials procurement
  D. Materials procurement

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  Explanation

  Strategic, or long-term, planning covers long periods of time and is concerned with matters such as new product development, capital budgeting; major financing, and mergers, acquisitions, and divestitures. Operational matters, such as materials procurement, are not a part of strategic planning, but they are a consideration in short- term, or operational , planning.

• Question 866:

  During the year, Mason Compass current assets increased by $120, current liabilities decreased by $50, and net working capital

  A. Increased by $70.
  B. Did not change.
  C. Decreased by $170.
  D. Increased by $170.
  D. Increased by $170.

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  Explanation

  Net working capital is the excess of current assets over current liabilities. An increase in current assets oar decrease in current liabilities increases working capital. Thus, networking capital increased by $170 ($120 + $50).

• Question 867:

  In equipment-replacement decisions, which one of the following does not affect the decision-making process?

  A. Current disposal price of the old equipment.
  B. Operating costs of the old equipment.
  C. Original fair market value of the old equipment.
  D. Cost of the new equipment
  C. Original fair market value of the old equipment.

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  Explanation

  All relevant costs should be considered when evaluating an equipment-replacement decision. These include the cost of the new equipment, the disposal price of the old equipment, and the operating costs of the old equipment versus the operating costs of the new equipment. The original cost or fair market value of the old equipment is a sunk cost and is irrelevant to future decisions. __

• Question 868:

  The prospect for the long-term profitability of an existing firm is greater when

  A. The firm operates in an industry with a steep learning curve in its production process
  B. The costs of switching suppliers is low
  C. New entrants are encouraged by government policy
  D. Distribution channels are willing to accept new products
  A. The firm operates in an industry with a steep learning curve in its production process

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  Explanation

  The prospects of long-term profitability are contingent upon the industry's exit and entry barriers. The entry of new firms in market decreases the prospect for long-term profitability. When a firm operates in an industry that has a steep learning curve, it ios more difficult for new firms to enter the market. Thus, the prospects of long-term profitability are greater for an existing firm.

• Question 869:

  Elan Corporation is considering borrowing $100,000 from a bank for 1 year at a stated interest rate of 9%. What is the effective interest rate to Elan if this borrowing is in the form of a discounted note?

  A. 8.10%
  B. 9.00%
  C. 9.81%
  D. 9.89%
  D. 9.89%

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  Explanation

  Applying the 9% interest rate to a $100,000 loan results in interest expense of $9,000. If the loan is processed in the form of a discounted note, the interest will be deducted from the proceeds of the loan. Thus, the $9,000 of interest will be deducted from the $100,000 note, resulting in loan proceeds of $91,000. The borrower is paying $9,000 for a loan of $91,000, resulting in an effective interest rate of 9.89%.

• Question 870:

  The result of the economic order quantity formula indicates the

  A. Annual quantity of inventory to be carried.
  B. Annual usage of materials during the year.
  C. Safety stock plus estimated inventory for the year.
  D. Quantity of each individual order during the year.
  D. Quantity of each individual order during the year.

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  Explanation

  The EOQ model is a deterministic model that calculates the ideal order (or production lot) quantity given specified demand, ordering or setup costs, and carrying costs. The model minimizes the sum of ,,inventory carrying costs and either ordering or production setup costs.