IMANET CMA Exam - Topic 1 Question 63 Discussion

Actual exam question for IMANET's CMA exam

Question #: 63
Topic #: 1

[All CMA Questions]

Book rate of return is an unsatisfactory guide to selecting capital projects because

I . It uses accrual accounting numbers

II . It compares a single project against the average of capital rejects.

III . It uses cash flows to gauge the desirability of the project.

Al only.

Bl & ll

CIll only.

DI . II, & Ill

Show Suggested Answer

Suggested Answer: B

A common misstep in regard to capital budgeting is the temptation to gauge the desirability of a project by using accrual accounting numbers instead of cash flows. Net income and book value are affected by the compas choices of accounting methods. A project's true rate of return cannot be dependent on bookkeeping decisions. Another distortion inherent in comparing a single project's book rate of return to the current one for the company as a whole is that the latter is an average of all of a firm's capital projects. Embedded in that average number 'may be a hand Full of good projects melding up for a large number of poor investments.

by Ty at Dec 23, 2022, 02:31 PM

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Owen

8 months ago

Totally agree, all three points make sense!

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Stevie

8 months ago

Wait, are we sure about that? Seems a bit off.

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Berry

9 months ago

Cash flows are crucial for project desirability, though.

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Isreal

9 months ago

I think comparing to average rejects is a valid point too.

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Jose

9 months ago

It definitely relies on accrual accounting numbers.

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Elvis

9 months ago

I’m leaning towards D because it seems like all three points highlight the limitations of the book rate of return in project selection.

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Holley

9 months ago

I feel like we practiced a question similar to this, and I think the focus should really be on cash flows, so maybe III is the key issue here.

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Paola

9 months ago

I’m not entirely sure about the comparison to average capital rejects. Wasn’t there something about how that could mislead decision-making?

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Leonora

9 months ago

I remember we discussed how accrual accounting can distort the actual cash flow picture, so I think that's a valid point.

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Leota

9 months ago

I'm feeling pretty confident about this one. I think option B is the way to go - replace the Cart-Show controller route in the client cartridge and add the datalayer object, while making sure the client cartridge is on the left of the U.HK cartridge m cartridge path.

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Lenna

9 months ago

Okay, I've got this. The default SIP media encryption mode for newly created zones in Cisco Expressway is Auto. I'm confident in that answer.

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Bernadine

9 months ago

I feel confident that SSL operates at the Application layer. That's where protocols like HTTP and SMTP are located.

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Tawanna

10 months ago

I'm feeling pretty confident about this one. I'll go with option B - setting Account_id_Event_timestamp as the row key. That should give me the flexibility I need.

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Lauran

10 months ago

This looks like a straightforward SSL offloading question. I think the key is to identify which profiles need to be removed to offload the SSL processing from the server.

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