IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 901:

  A major use of warrants in financing is to

  A. Lower the cost of debt
  B. Avoid dilution of earnings per share.
  C. Maintain managerial control.
  D. Permit the buy-back of bonds before maturity
  A. Lower the cost of debt

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  Explanation

  Warrants are long-term options that give holders the ghetto buy common stock in the future at a specific price. If the market price goes up, the holders of warrants will exercise their rights to buy stock at the special price. If the market price does not exceed the exercise price, the warrants will lapse. Issuers of debt sometimes attach stock purchase warrants to debt instruments as an inducement to investors. The investor then has the specialty of fixed- return debt plus the possibility for large gains if stock prices increase significantly, W warrants are attached, debt can sell at an interest rate slightly lower than the market rate

• Question 902:

  Average daily cash outflows are $3 million for Evans Inc. A new cash management system can add 2 days to the disbursement schedule. Assuming Evans earns 10% on excess funds, how much should the firm be willing to pay per year for this cash management system?

  A. $6,000,000
  B. $3,000,000
  C. $1,500,000
  D. $600000
  D. $600000

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  Explanation

  If cash outflows are $3 million per day, holding cash 2 extra days means that average balances should increase by $6 million. At a 10% interest rate, the additional $6 million would generate interest revenue of $600000 per year. Thus, if the system can be acquired for $600,000 or less, it would be beneficial to do so.

• Question 903:

  When management must decide to accept or reject a one-time-only special order, given sufficient idle capacity, which one of the following is not relevant to the decision?

  A. Absorption costs.
  B. Differential costs.
  C. Direct costs.
  D. Variable costs.
  A. Absorption costs.

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  Explanation

  Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental or differential costs are always relevant. In special-order situations, given sufficient excess capacity, management is not concerned with full absorption costing because it includes certain product costs (fixed factory overhead) that will not change if the special order is accepted. The principal issue is recovery of the variable costs of processing the special order and earning a contribution margin to apply toward covering fixed costs and profits. Thus, given sufficient capacity that would otherwise be idle (opportunity cost is zero), accepting a special order may be indicated as long as the organization recoups its variable costs.

• Question 904:

  Which method for measuring risk considers both the sensitivity of changing NPVs and the range of values of the variables that are changed?

  A. Simulation analysis
  B. The capital Asset Pricing Model
  C. Sensitivity analysis
  D. Certainty equivalent adjustments.
  A. Simulation analysis

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  Explanation

  Simulation analysis considers both the sensitivity of the VPV when variables are changed and the range of values of the variables that are changed.

• Question 905:

  Which method of indenting alternative courses of action is primarily designed to optimize performance of an activity at 2 minimum cost?

  A. Disunion approach.
  B. Value analysis.
  C. Brainstorming.
  D. Attribute listing.
  B. Value analysis.

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  Explanation

  Value analysis is a methodical approach primarily designed to optimize performance of an activity at a minimum cost. Emphasis is on the cost-benefit criterion.

• Question 906:

  Which of the following is a type of research approach used to gather primary information?

  A. Surveying of attitudes, awareness, and customer satisfaction levels.
  B. Using Internet search engines.
  C. Researching government publications.
  D. Subscribing to commercial services.
  A. Surveying of attitudes, awareness, and customer satisfaction levels.

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  Explanation

  The following are the types of research approaches used to gather primary information:

  observations, e.g., of competitors' customers, or employees; focus group discussions guided by a moderator and recorded for later analysis; surveys of attitudes, awareness, customer satisfaction levels, and other matters that provide

  descriptive information; customer behavior; and experimentation to determine the cause of some observed result by oting the effects of a variable.

• Question 907:

  The firm should emphasize customer retention

  A. By creating low switching costs.
  B. By maximizing customer churn.
  C. Although new customers are less costly than old customers.
  D. Because the customer base is an intangible asset.
  D. Because the customer base is an intangible asset.

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  Explanation

  Firm should seek to minimize customer churn (customer loss) because customer retention through customer satisfaction is a key to profitability'. The firm should emphasize customer retention because the customer base is an important intangible asset. The firm benefits from customer retention because it is far less costly than customer attraction. Indeed, increasing the retention rate increases profits exponentially. Moreover, the longer the 1customer relationship, the more profitable it is.

• Question 908:

  A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4. 00 and a fixed cost per unit of $2. 00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The firm's manufacturing cost variance was

  A. $85,000 favorable.
  B. $35,000 unfavorable.
  C. $5,000 favorable.
  D. $5,000 unfavorable.
  C. $5,000 favorable.

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  Explanation

  The company planned to produce 100,000 units at $6 each ($4 variable + $2 fixed cost), or a total of $600,000, consisting of $400000 of variable costs and $200,000 of fixed costs. Total production was only 80,000 units at a total cost of $515,000. The flexible budget for a production level of 80,000 units includes variable costs of $320,000 ($4 x 80,000 units). Fixed costs would remain at $200,000. Thus, the total flexible budget costs are $520,000. Given that actual costs were only $515,000, the variance is $5,000 favorable.

• Question 909:

  An of the following are adjustments/preference items to corporate taxable income in calculating alternative minimum taxable income except

  A. Accelerated depreciation over straight line on most real property placed into service prior to 1987.
  B. Mining exploration and development costs
  C. A charitable contribution of appreciated property,
  D. Sales commission earned in the current year but paid in the following year
  D. Sales commission earned in the current year but paid in the following year

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  Explanation

  Taxable income is adjusted to maven at attentive minimum taxable income, Some of the common adjustments include gains or losses from long-term contracts, gains on installment sales of real property. mining exploration and development costs, charitable contributions of appreciated property, accelerated depreciation, the accumulated current earnings adjustment, and tax-exempt interest on private activity bonds issued after August 7, 1986 A sales commission accrued in the current year but paid in the following year is not an example of an AMT adjustment.

• Question 910:

  Which of the following is not a benefit of lean production?

  A. Reduced setup time.
  B. Lower central support costs.
  C. Lower training costs.
  D. Improved on-time delivery.
  C. Lower training costs.

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  Explanation

  Since every worker in a manufacturing cell must be able to operate every piece of machinery in the cell,reduced training costs do not necessarily accompany the deployment of lean production.