IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 981:

  What is the key strategic issues when a firm is considering capacity expansion?

  A. Forecasting long-term demand
  B. Analyzing the behavior of competitors
  C. Identifying options
  D. Avoiding industry overcapacity
  D. Avoiding industry overcapacity

  ---

  Explanation

  Whether to expand capacity is a major strategic decision because of the capital required, the difficulty of forming accurate expectations, and the long time frame of the lead times and the commitment. The key forecasting problems are longterm demand and behavior of competitors. The key strategic issue is avoidance of industry overcapacity. Undercapacity in a portable industry trends to be a short-term issue. Profits ordinarily lure additional investors. Overcapacity trends to be a long-term problem because firms are more likely to compete intensely rather than reverse their expansion

• Question 982:

  The following forecasts have been prepared for a new investment by Oxford Industries of $20 million with an 8-year life:

  

  Assume that Oxford employs straight-line depreciation, and that they are taxed at 35%. Assuming an opportunity cost of capital of 14%, what is the NPV of this project, based on expected outcomes?

  A. $2,626,415
  B. $4,563,505
  C. $6,722,109
  D. $8,055,722
  B. $4,563,505

  ---

  Explanation

  The first step is to calculate the annual cash flows from the project for the base case (the expected values). These may be calculated as shown: This level of cash flow occurs for each of the 8 years of the project. The present value of an 8-year, $1 annuity is 4. 639 at 14%. The NPV of the project is therefore given by:

  

• Question 983:

  An analysis of a company's planned equity financing using the Capital Asset Pricing Model (or Security Market Line) incorporates 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.

  ---

  Explanation

  The capital asset pricing model adds the risk-free rate to the product of the market risk premium and the beta coefficient. The market risk premium is the amount above the risk1ree 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 984:

  Regal Industries is replacing a grinder purchased 5 years ago for $15,000 with a new one costing $25. 000 cash. The original grinder is being depreciated on a straight-line basis over 15 years to a zero salvage value; Regal will sell this old equipment to a third party for $6,000 cash, The new equipment will be depreciated on a straight-line basis over 10 years to a zero salvage value Assuming a 40% marginal tax rate. Regale's net cash investment at the time of purchase if the old gander is sold and the new one purchased is

  A. $19,000
  B. $15,000
  C. $17,400
  D. $25,000
  C. $17,400

  ---

  Explanation

  The old machine has a carrying amount of $10,000 [$15,000 cost--S ($15,000 cost +15 years) depreciation]. The loss on the sale is $4,000 ($10,000-- $6,000 cash received), and the tax savings from the loss is $1,600 ($4,000 x 40%). Thus, total inflows are $7,600 The only outflow is the $25,000 purchase price of the new machine. The net cash investment is therefore $17,400 ($25,000-- $7,600).

• Question 985:

  Which one of the following managements consideration is usually addressed first in strategic planning?

  A. Outsourcing.
  B. Overall objective of the firm.
  C. Organizational structure
  D. Recent annual budgets.
  B. Overall objective of the firm.

  ---

  Explanation

  Strategic planning is the process of setting overall organizational objectives and drafting strategic plans. It is a process of long-term planning. Setting ultimate objectives for the firm is a necessary prelude to developing strategies for achieving those objectives. Plans and budgets are then needed to implement those strategies.

• Question 986:

  With respect to the use of commercial paper by an industrial firm, which one of the following statements is most likely to be true?

  A. The commercial paper is issued through a bank.
  B. The commercial paper has a maturity of 60-270 days
  C. The commercial paper is secured by the issuer's assets.
  D. The commercial paper issuer is a small company
  B. The commercial paper has a maturity of 60-270 days

  ---

  Explanation

  Most commercial paper has a maturity of between 60 and 270 days.

• Question 987:

  The effectiveness of a JIT system is often facilitated by the elimination of some commen forms of internal control.the elimination of which internal control is usually acceptable with a JIT system?

  A. Prepation of hard copy receiving reports.
  B. Voucher approval priot to paying accounts payable.
  C. Two signatures required on large cheaks.
  D. Locked doors on production areas.
  A. Prepation of hard copy receiving reports.

  ---

  Explanation

  Receivivg departments are often eliminated with a JIT system so receiving reports are not needed.also,the quality received should be exactly equal to immediate production needs.

• Question 988:

  Methods of accelerating cash collections include all of the following except

  A. Decentralized collections.
  B. Electronic funds transfers.
  C. Compensating balances.
  D. Lockbox systems.
  C. Compensating balances.

  ---

  Explanation

  Various methods of accelerating cash collections include decentralized collection outposts (normally one in each Federal Reserve District), electronic funds transfers, centralized banking for all company branches to avoid having to maintain minimum balances in several locations, and lockbox systems. A compensating balance is a minimum average or absolute amount that must be maintained in a bank account. Hence, it is not a means of accelerating cash collections. This requirement means that less cash is available to the depositor.

• Question 989:

  How much does each additional sales dollar contribute toward profit for a firm with $4 million break-even level of revenues and $1 .2 million in fixed costs including depreciation?

  A. $0.30
  B. $0.33
  C. $0.50
  D. $0.67
  A. $0.30

  ---

  Explanation

• Question 990:

  The cheapestwayto gain market share ordinarily is by targeting

  A. Close competitors.
  B. Distant competitors.
  C. Weak competitors.
  D. Bad competitors.
  C. Weak competitors.

  ---

  Explanation

  Using the results of a customer value analysis, a firm may target a given class of competitors to gain market share. Targeting weak competitors is usually the cheapestwayto gain market share because weak competitors generally do not offer much resistance.