IMANET Exam CMA Topic 1 Question 103 Discussion

Actual exam question for IMANET's CMA exam

Question #: 103
Topic #: 1

[All CMA Questions]

Barker, Inc. has no capital rationing constraint and is analyzing many independent investment alternatives. Barker should accept all investment proposals

AIf debt financing is available for them.

BThat have positive cash flows.

CThat provide returns greater than the before-tax cost of debt.

DThat have a positive net present value.

Show Suggested Answer

Suggested Answer: D

Initially, the company must invest $105,000 in the machine. Consisting of the invoice price of $90 00. the delivery costs of $6,000, and the installation costs of $9,000.

by Marge at Nov 16, 2024, 12:07 AM

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Jesse

1 months ago

Wait, Barker has no capital rationing constraint? Lucky them! I wish my company had that luxury. Option D all the way!

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Huey

1 months ago

Hmm, I'm not sure. I think option A makes the most sense. Barker should accept all investment proposals if they have access to debt financing, right?

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Leonor

1 months ago

Haha, who needs a cost of debt when you can just borrow money from your rich uncle at 0% interest? Option C is clearly the way to go!

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Jina

1 months ago

I disagree. I believe option B is the way to go. Barker should accept all investment proposals that have positive cash flows, regardless of their net present value.

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Wilburn

2 months ago

But what about the ones that provide returns greater than the before-tax cost of debt?

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Shaquana

2 months ago

I think option D is the correct answer. Barker should accept all investment proposals that have a positive net present value, as this will maximize the company's value.

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