IMANET CMA Exam - Topic 1 Question 27 Discussion

Actual exam question for IMANET's CMA exam

Question #: 27
Topic #: 1

Lawson. Inc. is expanding its manufacturing plant, which requires an investment of $4 million in new equipment and plant modifications. Lawson's sales are expected to increase by $3 million per year as a result of the expansion. Cash investment in current assets averages 30% of sales; accounts payable and other current liabilities are 10% of sales. What is the estimated total investment for this expansion?

A$3.4 million.

B$4.3 million.

C$4.6 million.

D$5.2 million.

Show Suggested Answer

Suggested Answer: C

The investment required includes increases in working capital (e.g.. additional receivables and inventories resulting from the acquisition of a new manufacturing plant). The additional working capital is an initial cost I of the investment, but one that will be recovered (i.e.. it has a salvage value equal to its initial cost). Lawson can use current liabilities to fund assets to the extent of 10% of sales. Thus, the total initial cash outlay will be $46 million ($4 million + [(30% --- 10%) x $3 million sales].

by Mirta at May 05, 2022, 12:56 PM

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Tegan

8 months ago

30% of $3 million is $900k for current assets.

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Marta

9 months ago

Totally agree, $4.6 million makes sense!

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Isreal

9 months ago

Wait, how did they calculate that? Seems off.

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Nikita

9 months ago

I think it should be around $4.6 million.

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Linette

9 months ago

Total investment includes equipment and current assets.

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Cornell

9 months ago

I practiced a question like this where we had to subtract liabilities from assets. I think we might need to do something similar here to find the net investment.

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Lashawna

9 months ago

I think the total investment should include the initial $4 million plus the working capital, but I'm not confident about the exact numbers.

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Yesenia

9 months ago

If I recall correctly, we need to calculate the cash investment in current assets first, which is 30% of the increased sales. That should help us find the total investment.

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Latosha

9 months ago

I remember we calculated working capital requirements in a similar question, but I'm not sure how to factor in the current assets and liabilities here.

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Paola

9 months ago

Ah, I think I know this one! It's got to be the cloud script option. That's how you automate credential gathering, right?

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Margo

9 months ago

Hmm, this looks like a tricky one. I'll need to carefully read through the command options to understand exactly what data is being collected and displayed.

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Rodolfo

10 months ago

I'm a little confused by the options. BigQuery is more for analytics and data warehousing, so that's probably not the right fit. Cloud Bigtable is for large-scale, high-throughput data storage, which doesn't seem quite right either. I'm leaning towards Cloud Datastore, but I'll need to double-check the details.

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