IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 911:

  A company wants to open a new store in one of two nearby shopping malls. In Mall A. the rent will be $250 .000 per year. In Mall B. the rent will be 4% of gross revenues. Assuming that revenues and all other elements under consideration are the same for both malls, at what level of revenues will the company be indifferent between the two malls?

  A. $1 .000.000
  B. $4. 000.000
  C. $6. 250.000
  D. $12,500,000
  C. $6. 250.000

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  Explanation

  The level of indifference is calculated by setting the equation for the first mall (a flat $250,000) equal to the equation for the second mall. Solving for that equation involves dividing $250,000 by 4%. resulting in an indifference level of revenues of $6,250,000.

• Question 912:

  Which of the following is false about international transfer prices for a multinational firm?

  A. Allows firms to attempt to minimize worldwide taxes.
  B. Allows the firm to evaluate each division.
  C. Provides each division with a profit-making orientation
  D. Allows firms to correctly price products in each country in which it operates.
  D. Allows firms to correctly price products in each country in which it operates.

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  Explanation

  The calculation of transfer prices should be unique to each country A scheme for calculating transfer prices for a firm may correctly price the firm's product in Country A but not in Country B. The product may be overpriced in Country B, and sales will be lower than anticipated. Alternatively, the product may be underpriced in Country B, and the authorities may allege that the firm is dumping its product there.

• Question 913:

  Wilkinson, Inc., which has a cost of capital of 12%, invested in a project with an internal rate of return (IRR) of 14%. The project is expected to have a useful life of four years, and it will produce net cash inflows as follows:

  

  The initial cost of this project amounted to

  A. $7,483
  B. $9,647
  C. $11,000
  D. $12,540
  A. $7,483

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  Explanation

  The internal rate of return (IRP) of a capital project is the rate at which the net present value (NPV) of its future cash flows equals zero. To find this project's NPV, therefore, it is necessary to discount the cash flows at the appropriate rate (14%) as follows:

  

• Question 914:

  The following data pertain to a 4-year project being considered by Metro Industries:

  A depreciable asset that costs $1,200,000 will be acquired on January 1 . The asset, which is expected to have a $200,000 salvage value at the end of 4 years, qualifies as 3- year property under the Modified Accelerated Cost Recovery

  System (MACPS).

  The new asset will replace an existing asset that has a tax basis of $150,000 and can be sold on the same January 1 for $180,000.

  The project is expected to provide added annual sales of 30,000 units at $20. Additional cash operating costs are: variable, $12 per unit fixed, $90,000 per year.

  A $50,000 working capital investment that is fully recoverable at the end of the fourth year is required.

  Metro is subject to a 40% income tax rate and rounds all computations to the nearest dollar. Assume that any gain or loss affects the taxes paid at the end of the year in which it occurred. The company uses the net present value method to

  analyze investments and will employ the following factors and rates.

  

  The expected incremental sales will provide a discounted, net-of-tax contribution margin over 4 years of

  A. $57,600
  B. $92,160
  C. $273,600
  D. $437,760
  D. $437,760

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  Explanation

  Additional annual sales are 30,000 units at $20 per unit. If variable costs are expected to be $12 per unit, the unit contribution margin is $8, and the total before-tax annual contribution margin is $240,000 (30,000 units x $8). The after-tax total annual contribution margin is $144,000 [$240,000 x (1 .0-- 4)]. This annual increase in the contribution margin should be treated as an annuity. Thus, its present value is $437,760 ($144,000 x 3. 04 PV of an annuity of $1 at 12% for four periods).

• Question 915:

  Willis, Inc. has a desired rate of return of 15% and is considering the acquisition of a new machine which costs $400,000 and has a useful life of 5 years. Willis projects that earnings and cash flow will increase as follows:

  

  What is the payback period of Willis' investment?

  A. 1.5 years.
  B. 3. 0 years.
  C. 3. 3 years.
  D. 4. 0 years.
  B. 3. 0 years.

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  Explanation

  The payback method calculates the number of years required to complete the return of the original investment. The initial cost is $400,000, so Willis will recoup its investment in 3 years ($160,000 in year 1 + $140,000 inyear2 + $100,000 in year 3).

• Question 916:

  Moorhead Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing cost is applied at a rate of $1 .00 per machine hour. The sales manager has had a $160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers.

  

  Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for BD-4. The minimum increase in sales dollars of BD-4 required to offset the increased advertising would be

  A. $160,000
  B. $320,000
  C. $960,000
  D. $1,600,000
  C. $960,000

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  Explanation

• Question 917:

  Which form of micromarketing is based on a specialized strategy directed toward a sub segment of a market segment?

  A. Sector marketing.
  B. Local marketing.
  C. Flexible marketing offerings.
  D. Niche marketing.
  D. Niche marketing.

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  Explanation

  Niche marketing is a specialized strategy based on devoting all marketing efforts toward a sub segment of a market segment. Niche marketing lypically appeals to smaller firms with limited resources, but larger firms also engage in niche marketing. It is attractive to these firms due to its cost effectiveness, the result of focusing marketing funds on a targeted group. Diverse types of niche marketing include end-user strategy, which is based on serving only one type of end-user customer; vertical-level strategy, which calls for specialization in one level of the production and distribution cycle and offering a unique product or service that is not available from another firm; and geographic strategy1 which involves selling in one specific geographic area.

• Question 918:

  On January 1, Crane Company will acquire a new asset that costs $400,000 and is anticipated to have a salvage value of $30,000 at the end 014 years. The new asset - Qualifies as 3-year property under the Modified Accelerated Cost

  Recovery System (MACRS).

  Will replace an old asset that currently has a tax basis of $80,000 and can be sold now for $60,000.

  Will continue to generate the same operating revenues as the old asset ($200,000 per year). However, savings in operating costs will be experienced as follows: a total of $1 20.000 in each of the first 3 years and $90,000 in the fourth year.

  Crane is subject to a 40% tax rate and rounds all computations to the nearest dollar. Assume that any gain or loss affects the taxes paid at the end of the year in which it occurred. The company uses the net present value method to analyze

  projects using the following factors and rates:

  

  The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal transaction is?

  A. $45,760.
  B. $60,000.
  C. $67,040.
  D. $68,000.
  C. $67,040.

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  Explanation

  The old asset can be sold for $60,000, producing an immediate cash inflow of that amount. This sale will result in a $20,000 loss for tax purposes ($80,000 -- $60,000). At a 40% tax rate, the loss, which is deemed to affect taxes paid at the end of the first year, will provide a tax savings (cash inflow) of $8,000. Because the $8,000 savings is treated as occurring at the end of the first year, it must be discounted. This discounted (present) value is $7,040 ($8,000 x .88 PV of $1 at 14% for one period). Combining the $60,000 initial inflow with the $7,040 of tax savings results in a net-of-tax amount of $67,040.

• Question 919:

  The amount of inventory that a company would tend to hold in safely stock would increase as the

  A. Usage rate of inventory per time period.
  B. Cost per unit of inventory.
  C. Current level of inventory.
  D. Cost of placing an order for merchandise.
  C. Current level of inventory.

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  Explanation

  The optimal level of inventory is affected by the factors in the economic order quantitj (EOQ) model and delivery or production lead times. These factors are the annual demand for inventory, the carrying cost, which includes the interest on funds invested in inventory, the usage rate, and the cost of placing an order or making a production run. The current level of inventory has nothing to do with the optimal inventory level.

• Question 920:

  During the growth stage of a product's life cycle,

  A. The quality of products is poor
  B. New product models and features are introduced
  C. There is little difference between competing products
  D. The quality of the products becomes more variable and products are less differentiated.
  B. New product models and features are introduced

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  Explanation

  In the growth stage, sales and profits increase rapidly, cost per customer decreases, customers are early adopters, new competitors enter an expanding market, new product models and features are introduced, and promotion spending describes or remains stable. The firm enters new market segments and distribution on channels and attempts to build brand loyalty and achieve the maximum share of the market. Thus, prices are set to penetrate the market, distribution channels are extended, and the mass market is targeted through advertising. The strategy is to advance by these means and by achieving economies of productive scale.