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IMANET CMA Exam - Topic 2 Question 7 Discussion

Actual exam question for IMANET's CMA exam
Question #: 7
Topic #: 2
[All CMA Questions]

Assume that the old equipment must be sold in order to purchase the new equipment. Given a constant effective corporate income tax rate and straight-line depreciation on both disposed and newly purchased pieces of equipment, the depreciation tax shield dung the later years of a capital project, assuming the old equipment was not yet full depreciated when it was disposed of, is general?

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Suggested Answer: A

Older equipment that is being disposed of is reaching the end of its productive he. Thus, in the early years of the project, the depreciation expense on the new equipment only provides an incremental tax benefit since there was some depreciation expense still being recognized on the old equipment. Once the time of the old equipment's useful life has passed, all the depreciation tax shield is being provided by the (higher) expense being recognized on the new equipment.


by Rolland at May 07, 2022, 09:48 PM

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Ellen
4 months ago
Same as earlier years, right? That's what I thought!
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Renay
5 months ago
Straight-line depreciation makes it predictable, but still tricky.
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Charolette
5 months ago
Wait, how can we be sure about that?
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Judy
5 months ago
I disagree, it should be less during the later years.
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Tasia
5 months ago
It's definitely greater in the later years!
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Goldie
5 months ago
This seems similar to a question we did on depreciation schedules. I feel like the tax shield would be less in later years, but I’m not confident.
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Tiera
5 months ago
I remember a practice question where the tax shield decreased over time, so I’m leaning towards option B, but I could be mixing it up.
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An
5 months ago
I think the depreciation tax shield is usually greater in the later years, but I'm not entirely sure how that applies here since we're disposing of old equipment.
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Janet
5 months ago
I’m not sure if we can determine the answer without more details about the depreciation rates. Option D might be the safest choice.
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Altha
5 months ago
I remember learning about OSPF's capabilities in class, but I'm drawing a blank on the specifics right now. I'll have to make an educated guess.
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Nickole
6 months ago
This seems straightforward. I'll select the data contract class and the service class as my answers and move on to the next question.
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Trinidad
6 months ago
Ah, I remember now! Risk Reassessment is actually part of the risk monitoring and control process, not the qualitative risk analysis process. I'll select that as my answer.
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Kip
6 months ago
This seems like a straightforward question about marketing strategies. I'm pretty confident I can figure this out.
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Sherell
6 months ago
I remember practicing a similar question about mapping perspectives, and I'm leaning towards value stream mapping because it deals with value exchange.
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