IMANET CMA Exam - Topic 2 Question 11 Discussion

Actual exam question for IMANET's CMA exam

Question #: 11
Topic #: 2

Calamity Cauliflower Corporation is considering undertaking a capital project. The company would have to commit $24,000 of working capital in addition to an immediate outlay of $160,000 for new equipment. The project is expected to generate $100,000 of annual income for 10 years. At the end of that time, the new equipment, which will be depreciated on a straight-line basis, is expected to have a salvage value of $10,000. The existing equipment that would be sold to make room for the project has a histoncal cost of $220,000 and accumulated depreciation of $208,000. It has an estimated remaining useful life of 2 years and the remaining book value is being depreciated on a straight-line basis. A scrap dealer has agreed to buy it for $8,000. The company's effective tax rate is 40%. The total after-tax cash inflow relevant to Calamity Cauliflower's disposal of the old equipment is

A$9,600

B$8,000

C$6,400

D$1,600

Show Suggested Answer

Suggested Answer: A

The relevant after-tax cash inflow consists of the proceeds on the disposal ($8.000) plus the tax benefit ($1,600).

by Howard at May 08, 2022, 07:42 PM

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Portia

7 months ago

I agree, the tax impact really changes the numbers!

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Stephaine

7 months ago

Wait, how did they calculate that? Seems off to me.

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Henriette

7 months ago

I'm leaning towards option A, $9,600 sounds right.

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Gail

7 months ago

I think the after-tax cash inflow is definitely more than $8,000.

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Goldie

8 months ago

The old equipment's book value is $12,000.

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Tyisha

8 months ago

I think the after-tax cash inflow should be the sale price minus the tax on the gain. If I remember correctly, the gain is the sale price minus the book value.

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Ariel

8 months ago

I feel a bit confused about how to apply the tax rate here. Is it just on the gain from the sale, or do we consider the entire sale price?

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Adell

8 months ago

This seems similar to a practice question we did about equipment disposal. I think we need to consider the book value and the tax rate to find the after-tax cash inflow.

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Rex

8 months ago

I remember we calculated after-tax cash inflows in class, but I'm not sure how to factor in the tax implications for the old equipment sale.

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Dorothy

8 months ago

I've seen questions like this before. The key is to focus on factors that could slow down or delay the overall project timeline. I'll go with B - unpaid invoice.

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Danica

8 months ago

Ah, this is a good one. I'm pretty familiar with the Solaris 11 root file system. I know ZFS is mandatory on rpool/ROOT, and that alternate boot environments only contain the differences from the previous one. I think I can nail this question.

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Joye

8 months ago

Ah, I remember the key distinction about GAAP. That should help me identify the correct answer.

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Myrtie

8 months ago

I feel like I might be missing something about the role of border nodes in this DHCP setup, but I can't quite place it right now.

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