IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 971:

  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.
  A. Electronic payment to a company's account at a concentration bank.

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  Explanation

  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 972:

  A firm's statement of broad objectives or mission statement should accomplish all of the following except

  A. Outlining strategies for technological development, market expansion, and product differentiation.
  B. Defining the purpose of the company.
  C. Providing an overall guide to those in high-level, decision-making positions.
  D. Stating the moral and ethical principles that guide the actions of the firm.
  A. Outlining strategies for technological development, market expansion, and product differentiation.

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  Explanation

  The determination of organizational objectives is the first step in the planning process. A mission statement is a formal, written document that defines the organization's purpose in society, for example, to produce and distribute certain goods of high quality in a manner beneficial to the public, employees, shareholders, and other constituencies. Thus, a mission statement does not announce specific operating plans. It does not describe strategies for technological development, market expansion, or product differentiation because these are tasks for operating management.

• Question 973:

  An aging of accounts receivable measures the

  A. Ability of the firm to meet short-term obligations.
  B. Average length of time that receivables have been outstanding.
  C. Percentage of sales that have been collected after a given time period.
  D. Amount of receive blest at have been outstanding for given lengths of time.
  D. Amount of receive blest at have been outstanding for given lengths of time.

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  Explanation

  The purpose of an aging of receivables is to classiN receivables by due date. Those that are current (not past due) are listed in one column, those less than 30 days past due in another column, etc. The amount in each category can then be multiplied by an estimated bad debt percentage that is based on a company's credit experience and other factors. The theory is that the oldest receivables are the least likely to be collectible. Aging the receivables and estimating the uncollectible amounts is one method of arriving at the appropriate balance sheet valuation of the accounts receivable account.

• Question 974:

  The term "escalation of commitment" refers to

  A. The process of continuing to fund old projects because of inadequate information or time to formally anal we the costs and benefits associated with continued investment.
  B. The decision maker increasing the resources to a new course of action if the employee can recommend alternatives such that the decision the new course of action as his/her own initiative.
  C. Committing to projects that have been shown to be successful and limiting the additional commitment of resources to projects that have been unsuccessful.
  D. The decision maker increasing the resources to the previous course of action in an effort to demonstrate that the previous course of action was appropriate.
  D. The decision maker increasing the resources to the previous course of action in an effort to demonstrate that the previous course of action was appropriate.

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  Explanation

  Consistency may be dysfunctional because it may result in inflexibility. The desire to avoid the inner conflict resulting from inconsistency may have adverse effects on decision making. For example, when a decision maker feels responsible for the failure of a course of action, (s) he may want to prove that the original decision was sound despite increasing evidence to the contrary. Thus, his/her commitment to a failed policy may escalate, and additional resources may be squandered.

• Question 975:

  DLE is a retail mail order firm that currently uses a central collection system that requires all checks to be sent to its Boston headquarters. An average of 6 days is required for mailed checks to be received, 3 days for DLE to process them, and 2 days for the checks to clear through its bank. A proposed lockbox system would reduce the mailing and processing time to 2 days and the check clearing time to 1 day. DLF has an average daily collection of $ 150.000. If DLE adopts the lockbox system, its average cash balance will increase by

  A. $1,200,000
  B. $750,000
  C. $600,000
  D. $450,000
  A. $1,200,000

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  Explanation

  Checks are currently tied up for 11 days (6 for mailing. 3for processing, and 2for clearing). If 1, that period were reduced to 3 days, Dale's cash balance would increase by $1,200,000 ($150,000 per day x 8 days).

• Question 976:

  The average collection period for a firm measures the number of days

  A. After a topical credit sale is made until the firm receives the payment.
  B. Foray pica check to" clear" through the banking system.
  C. Beyond the end of the credit period before atypical customer payment is received.
  D. Before a typical account becomes delinquent.
  A. After a topical credit sale is made until the firm receives the payment.

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  Explanation

  The average collection period measures the number of days between the date of sale and the date of collection. It should be related to a firm's credit terms. For example. a firm that allows terms of 2/151 net 301 should have an average collection period of somewhere between 15 and 30 days.

• Question 977:

  The technique that reflects the time value of money and is calculated by dividing the present value of the future net after- tax cash inflows that have been discounted at the desired cost of capital by the initial cash outlay for the investment is called the

  A. Capital rationing method.
  B. Average rate of return method.
  C. Profitabilityr index method.
  D. Accounting rate of return method.
  C. Profitabilityr index method.

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  Explanation

  The profitability index is another term for the excess present value index. It measures the ratio of the present value of future net cash inflows to the original investment. In organizations with unlimited capital funds, this index will produce no conflicts in the decision process. If capital rationing is necessary, the index will be an insufficient determinant. The capital available as well as the dollar amount of the net present value must both be considered.

• Question 978:

  Polar Company sells refrigeration components both in the U.S. and to a subsidiary located in France. One of the components, Part No. 456, has a variable manufacturing cost of $30. The part can be sold domestically or shipped to the French

  subsidiary for use in the manufacture of a residential subassembly. Relevant data with regard to Part No.

  456 are shown below.

  

  *

  lf deemed preferable, these units could be sold in the U.S. Polar's applicable income tax rates are 40% in the U.S. and 70% in France.Polar will transfer Part No. 456 to the French subsidiary at either variable manufacturing cost or the domestic market price. On the basis of this information, which one of the following strategies should be recommended to Polar's management?

  A. Transfer 150,000 units at $30 and the French subsidiary pays the shipping costs.
  B. Transfer 150,000 units at $65 and the French subsidiary pays the shipping costs.
  C. Sell 150,000 units in the U.S. and the French subsidiary obtains Part No. 456 in France.
  D. Transfer 150,000 units at $65 and have the U.S. company absorb the shipping costs.
  C. Sell 150,000 units in the U.S. and the French subsidiary obtains Part No. 456 in France.

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  Explanation

  If the 150,000 components are sold separately in the U.S., the after-tax profit per unit will be $21 [($65-$30)x.6]. The French subsidiary will then purchase150,000 components domestically to include in the subassembly. The per-unit profit on sales of the subassembly will be $12 [($170-$75-$55)x.3]. The total per-unit profit for the consolidated entity from these transactions will therefore be $33 ($21 + $12).

• Question 979:

  Assuming a 360-day year, the current price of a $100 U.S. Treasury bill due in 180 days on a 6% discount basis is

  A. $97. 00
  B. $94. 00
  C. $100.00
  D. $93. 00
  A. $97. 00

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  Explanation

  The 6% discount rate is multiplied times the face amount of the Treasury bill to determine the amount of interest the lender will earn. The interest on this Treasury bill is $3 ($100 x 6% x 5 year), thus the purchase price is $97 ($100--$3).

• Question 980:

  Don Adams Breweries is considering an expansion project with an investment of $1 .500000. The equipment will be depreciated to zero salvage value on a straight-line basis over 5 years. The expansion will produce incremental operating revenue of $400,000 annually for 5 years. The company's opportunity cost of capital is 12%. Ignore taxes.What is the NPV of the investment?

  A. $0
  B. $(58,000)
  C. $(116,000)
  D. $1,442,000
  B. $(58,000)

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  Explanation