IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 891:

  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 overall discounted cash flow impact of Gunning Industries' working capital investment for the new production machine would be

  A. $(7,959)
  B. $(10,080)
  C. $(13,265)
  D. $(35,000)
  C. $(13,265)

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  Explanation

  The $35,000 of working capital requires an immediate outlay for that amount, but it will be recovered in 5 years. Thus, the net discounted cash outflow is $13,265 [$35,000 initial investment--($35,000 future 1inflow x .621 PV of $1 for 5 years at 10%)].

• Question 892:

  The term `underwriting spread" refers to the

  A. Commission percentage an investment banker receives for underwriting a security issue.
  B. Discount investment bankers receive on securities they purchase from the issuing company.
  C. Difference between the price the investment banker pays for a new security issue and the price at which the securities are resold.
  D. Commission a broker receives for either buying or selling a security on behalf of an investor.
  C. Difference between the price the investment banker pays for a new security issue and the price at which the securities are resold.

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  Explanation

  An investment banker performs an underwriting or insurance function when it purchases an issue of securities and then resells them. The risk of price fluctuations during the distribution period is borne entirely by the investment banker. Investment banking is also an efficient vehicle for marketing the securities because investment bankers are specialists in such activities The profit earned is the underwriting spread, or the difference between the purchase and resale prices of the securities (effectively, the wholesale and retail prices).

• Question 893:

  ABD Really manages five apartment complexes in a three-state area. Summary income statements for each apartment complex are shown as follows: Included in the expenses is $1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is (are)

  

  A. Apartment complexes Two, Three, Pour, and Five.
  B. Apartment complexes Three, Pour, and Five.
  C. Apartment complexes Pour and Five.
  D. Apartment complex Four.
  C. Apartment complexes Pour and Five.

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  Explanation

• Question 894:

  Listed below are a company's monthly unit costs to manufacture and market a particular product.

  

  The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing operating income?

  A. $8.50
  B. $6. 75
  C. $7. 75
  D. $5. 25
  B. $6. 75

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  Explanation

• Question 895:

  The net present value (NPV) method of investment project analysis assumes that the project's cash flows are reinvested at the A. Computed internal rate of return.

  B. Risk4ree interest rate.

  C. Discount rate used in the NPV calculation.

  D. Firm's accounting rate of return.

  Correct Answer. C
  C

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  Explanation

  The NPV method is used when the discount rate is specified. It assumes that cash flows from the investment can be reinvested at the particular project's discount rate.

• Question 896:

  A chief executive officer (CEO) believes that a major competitor may be planning a new campaign. The CEO sends a questionnaire to key personnel asking for original thinking concerning what the new campaign may be. The CEO selects the best possibilities then sends another questionnaire asking for the most likely option. The process employed by the CEO is called the

  A. Least squares technique.
  B. Delphi technique.
  C. Maximum likelihood technique.
  D. Optimizing of expected payoffs.
  B. Delphi technique.

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  Explanation

  The Delphi Technique is a forecasting or decision making approach that attempts to avoid groupthink (the tendency of individuals to conform to what they perceive to be the consensus). The technique allows only written, anonymous communication among group members. Each member takes a position on the problem at hand. A summary of these positions is communicated to each member. The process is repeated for several iterations as the 1members move toward a consensus. Thus, the Delphi technique is a qualitative, not quantitative, technique.

• Question 897:

  Market-based pricing bases prices on

  A. The choice of products offered as accessions and those offered as standard features.
  B. The products perceived value and the competitor's actions.
  C. A relativity low ratio of price to quality delivered.
  D. Differentiation of prices by geographic region.
  B. The products perceived value and the competitor's actions.

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  Explanation

  Market-based pricing bases prices on the product's perceived value and competitors' actions rather than on the seller's cost. Announce variables in the marketing mix (image, seller's reputation, warranties. customer service, and channel attributes) augment the perceived value

• Question 898:

  Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as

  A. Avoidable fixed costs.
  B. Factory depreciation.
  C. Property taxes.
  D. Factory management costs.
  A. Avoidable fixed costs.

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  Explanation

  Relevant costs are anticipated costs that will vary among the choices available. If two courses of action share some costs, those costs are not relevant because they will be incurred regardless of the decision made. Relevant costs include fixed costs that could be avoided if the items were purchased from an outsider.

• Question 899:

  An analysis of a company's planned equity financing using the capital asset pricing model (or security market line) would incorporate only the

  A. Expected market earnings, the current U.S. Treasury bond yield, and the beta coefficient.
  B. Expected market earnings and the price-earnings ratio,
  C. Current U.S. Treasury bond yield, the price-earnings ratio, and the beta coefficient.
  D. Current U.S. Treasury bond yield and the dividend payout ratio.
  A. Expected market earnings, the current U.S. Treasury bond yield, and the beta coefficient.

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  Explanation

  The capital asset pricing model adds the risk-tree rate to the product of the market risk premium and the beta coefficient. The market risk premium is the amount above the risk- free rate (approximated by the U.S. Treasury bond yield) that must be paid to induce investment in the market The beta coefficient of an individual stock is the correlation between the price volatility of the stock market as a whole and the price volatility of the individual stock.

• Question 900:

  Which one of the following will not occur in an organization that gives managers throughout the organization maximum freedom to make decisions?

  A. Individual managers regarding the managers of other segments as they do external parties
  B. Two divisions of the organization having competing models that aim for the same market segments.
  C. Delays in securing approval for the introduction of new products
  D. Greater knowledge of the marketplace and improved service to customers.
  C. Delays in securing approval for the introduction of new products

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  Explanation

  Decentralization is beneficial because it creates greater responsiveness to the needs of local customers, suppliers, and employees Managers at lower levels are more knowledgeable about local markets and the needs of customers, etc. A decentralized organization is also more likely to respond flexibly and quickly to changing conditions, for example, by expediting the introduction of new products. Furthermore, greater authority enhances managerial morale and development. Disadvantages of decentralization include duplication of effort and lack of goal congruence.