IMANET CMA Exam - Topic 4 Question 10 Discussion

Actual exam question for IMANET's CMA exam

Question #: 10
Topic #: 4

[All CMA Questions]

Calamity Cauliflower Corporation is conceding 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, witch will be depreciated on a straight-line basis, is expected to have a sage value of $10,000. The exiting equipment that would be sold to make room for the project has a historical 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 net initial investment required for Calamity Cauliflower to undertake this capital project is

A$184,000

B$176,000

C$174,400

D$160,000

Show Suggested Answer

Suggested Answer: C

The net initial investment consists of the initial outlay for new equipment ($160,000) plus the increase to working capital ($24,000) minus the net after-tax cash flow from the disposal of the old equipment ($9,600).

by Kate at May 09, 2022, 11:48 AM

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Chaya

4 months ago

Wait, how does the scrap value factor in?

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Elise

4 months ago

I agree, it’s gotta be $176,000!

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Katina

4 months ago

Isn’t the tax impact going to change the net investment?

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Walton

4 months ago

I think it’s definitely more than $176,000.

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Arminda

5 months ago

The initial outlay is $160,000 plus $24,000 working capital.

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Edgar

5 months ago

I practiced a similar question where we had to consider salvage value and depreciation, so I think the salvage value of $10,000 is important here too.

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Marylin

5 months ago

I think the initial outlay is $160,000 plus the working capital of $24,000, but I can't recall if we should subtract the tax effect from the sale of the old equipment.

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Erick

5 months ago

I remember we discussed how to calculate the net initial investment, but I'm a bit unsure about how to factor in the tax implications from the sale of the old equipment.

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Jettie

5 months ago

I feel like the answer might be $176,000, but I’m not completely confident. I need to double-check how the tax rate affects the sale of the old equipment.

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Quentin

5 months ago

This is a tricky one. There are a few options presented, but I'm not totally sure which one is the best answer. I think I'll go with the first one about implementing a comprehensive policy for accessing customer information, since that seems to be a major issue that Roberta identified.

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Carey

5 months ago

Okay, let me see... I think the internal account is used to access the SAS/SHARE server, so I'll choose option C.

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Melodie

5 months ago

Okay, let's see here. I'm pretty sure "Buyer" and "Owner" are correct, but I'm not sure about the third one. I'll have to review the material on access levels again.

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Willetta

5 months ago

This is a tricky one. I'm not entirely sure I understand the distinctions between the different terms. I'll need to re-read the question and options a few times to make sure I don't miss anything.

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