Free IMANET CMA Exam Dumps June 2026

The payback period is the time required to recover the original investment. As determined below, the annual net after-tax cash inflows for Years 1 through 3 are $138,000, $150,000, and $138,000 (excluding salvage value), respectively. In Year 1, the after-tax cash inflow is $170,000 minus taxes of $32,000 {[$1 70,000 --- ($300,000 x 30%) depreciation] x 40%}, or $138,000. In Year 2, the after-tax cash inflow is $170,000 minus taxes of $20,000 {[$1 70,000 --- $300,000 x 40%) depreciation] x 40%}, or $150,000. In Year 3, the after-tax cash inflow I(excluding salvage value) is again $138,000. After 2 years, $288,000 ($138,000 + $150,000) will have been 'recovered. Consequently, the first $12,000 received in Year 3 will recoup the initial investment. Because $12,000 represents .09 (rounded) of Year 3 net after4ax cash inflows ($12,000 + $138,000), the payback period is 2.09 years.

The relevant costs in a make-versus-buy decision are those that differ between the two decision choices. These costs include any variable costs plus any avoidable fixed costs. Avoidable fixed costs will not be incurred if the ''buy'' decision is selected.

The assumptions under which CVP analysis operates primarily hinge on certainty. Once [uncertainty enters the situation, the results are not so clear. Thus, the accountant should make an appropriate effort to ascertain the probabilities of various outcomes. The accountant can then work with management to help make the appropriate decision.

Given a periodic constant cash flow, the payback period is calculated by dividing cost by the annual cash inflows, or cash savings. To achieve a payback period of 3 years, the annual increment in net cash inflow generated by the investment must be $150,000 ($450000 + 3-year targeted payback period). This amount equals the total reduction in cash operating costs minus related taxes. Depreciation is $90000 ($450,000 + 5 years). Because depreciation is a non cash deductible expense, it shields $90,000 of the cash savings from taxation. Accordingly, $60000 ($150000 ---$90,000) of the additional net cash inflow must come from after-tax net income. At a 40% tax rate, $60,000 of after-tax income equals $100000 ($60,000 + 60%) of pre-tax income from cost savings, and the outflow for taxes is $40,000. Thus, the annual reduction in cash operating costs required is $190,000 ($150,000 additional net cash inflow required + $40,000 tax outflow).

The breakeven point in units equals fixed costs divided by the contribution margin per unit at a selling price of $60 per unit and with variable costs of $40 per unit, the unit contribution margin is $20. Thus, the breakeven point is 44,000 units ($880,000 $20).

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).

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.