IMANET CMA Exam - Topic 1 Question 19 Discussion

Actual exam question for IMANET's CMA exam

Question #: 19
Topic #: 1

The Dickens Corporation is considering the acquisition of a new machine at a cost of $180,000. Transporting the machine to Dickins' plant will cost $1 2.000. Installing the machine will cost an additional $18,000. It has a 10-year life and is expected to have a salvage value of $10,000. Furthermore, the machine is expected to produce 4.000 units per year with a selling price of $500 and combined direct materials and direct labor costs of $450 per unit. Federal tax regulations permit machines of this ripe to be depreciated using the straight-line method over 5 years with no estimated salvage value. Dickens has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Dickens should use in a capital budgeting analysis?

A$(170,000)

B$(180.000)

C$(192,000)

D$(210,000)

Show Suggested Answer

Suggested Answer: D

Delivery and installation costs are essential to preparing the machine for its intended use. Thus the company must initially pay $2 10.000 for the machine, consisting of the invoice price of $180,000. the delivery costs of $1 2,000, and the $18,000 of installation costs.

by Ernie at May 05, 2022, 08:09 AM

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Mattie

7 months ago

Actually, the net cash outflow is just the initial costs, so $210,000 is right.

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Wilburn

7 months ago

Don't forget about the salvage value when calculating cash flows!

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Emerson

7 months ago

Wait, are we sure about those costs? Seems high.

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Norah

7 months ago

I agree, it's definitely $210,000.

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Alica

8 months ago

The total initial cost is $180,000 + $12,000 + $18,000 = $210,000.

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Cathrine

8 months ago

I think the total cash outflow should be the sum of all upfront costs, but I’m torn between options B and C.

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Walker

8 months ago

I feel like I might be forgetting something about the salvage value and depreciation. Does that affect the initial cash outflow?

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Jackie

8 months ago

This question seems similar to one we practiced about capital budgeting. I think we need to add the machine cost, transportation, and installation costs together.

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Haydee

8 months ago

I remember we discussed how to calculate the initial cash outflow, but I'm not sure if I included all the costs correctly.

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Mozelle

8 months ago

This is a tricky one, but I think I can figure it out. The Qur'an and the Sunnah are definitely primary sources, so I'm leaning towards option (D).

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Sol

8 months ago

I'm a little confused by this question. The options all seem plausible, but I'm not sure which one best captures the program manager's overall strategy. I'll have to review my notes on program management to see if I can figure this out.

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Cristal

8 months ago

I remember practicing with "explain analyze SQL" in class, but I feel like that might actually run the query, which could be risky.

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