IMANET CMA Exam - Topic 4 Question 85 Discussion

Actual exam question for IMANET's CMA exam

Question #: 85
Topic #: 4

[All CMA Questions]

A characteristic of the payback method (before taxes) is that it

AIncorporates the time value of money.

BNeglects total project profitability.

CUses accrual accounting inflows in the numerator of the calculation.

DUses the estimated expected life of the asset in the denominator of the calculation.

Show Suggested Answer

Suggested Answer: B

If the 8% return exactly equals the present value of the future flows ., NPV is zero), then simply determine the present value of the future inflows. Thus, Hopkins Company's initial cash outlay is $19,090 [($2,500)(PVIFA at 8% for 10 periods) + ($5J00)(PVlF at 8% for 10 periods ($2,500)(6.710) + ($5,000)(.463)].

by Benedict at Apr 20, 2024, 06:09 AM

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Levi

6 months ago

I thought it included accrual accounting inflows?

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Danilo

6 months ago

It uses the asset's estimated life in the denominator.

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Danilo

6 months ago

Wait, are we sure it doesn't consider time value?

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Brett

7 months ago

Totally agree, that's a major flaw!

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Cristina

7 months ago

It neglects total project profitability.

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German

7 months ago

I vaguely recall that the payback method focuses on cash flows rather than accrual accounting. So, I think C might be incorrect.

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Hyun

7 months ago

I’m not entirely sure, but I feel like the payback method does use the estimated life of the asset in some way. Could it be D?

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Vincent

7 months ago

I remember practicing a question where the payback method was criticized for ignoring total profitability. That makes me lean towards B as well.

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Margery

8 months ago

I think the payback method doesn't really consider the time value of money, right? So maybe it's B?

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Kristel

8 months ago

Alright, I've got this. The payback method is all about how long it takes to recoup the initial investment, so it doesn't incorporate the time value of money. That means A is wrong. And it uses cash flows, not accrual accounting, so C is out too. I'm confident the answer is D.

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Beth

8 months ago

Hmm, I'm a little confused on this one. I know the payback method is pretty simple, but I can't quite remember all the details. I'm going to have to think it through carefully before answering.

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Leanna

8 months ago

I remember learning about this in class. The payback method uses the cash inflows, not accrual accounting, so C is definitely not correct. I think the answer is D - it uses the estimated life of the asset in the denominator.

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Leatha

8 months ago

Okay, let me think this through. The payback method just looks at how long it takes to recoup the initial investment, so it doesn't really care about total profitability. I'm leaning towards option B.

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Stephaine

8 months ago

Hmm, this is a tricky one. The payback method doesn't consider the time value of money, so I'm pretty sure option A is wrong. I think it might be B or D, but I'm not totally sure.

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Tom

8 months ago

Okay, this looks straightforward. I'm going to go with option C and add the required components to each item within the solution.

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Matthew

8 months ago

Alright, I think I've got this. The 6454 has 54 unified ports, and each one can handle 16 Gbit. So the minimum number I need is 6 ports per Fabric Interconnect, for a total of 12 unified ports.

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Dortha

8 months ago

This is a good question to test our knowledge of Alibaba Cloud WAF. I think the key is to focus on the specific features listed and eliminate the ones that we know are actually provided. That should lead us to the right answer.

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Laurel

1 year ago

Option C is my pick. Using accrual accounting inflows in the numerator just seems like the logical way to do it.

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Pa

12 months ago

I'm not sure about that, I think it uses the estimated expected life of the asset in the denominator.

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Lavina

1 year ago

I believe it incorporates the time value of money.

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Rodolfo

1 year ago

I think it neglects total project profitability though.

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Annett

1 year ago

I agree, using accrual accounting inflows makes sense.

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Reyes

1 year ago

Haha, the payback method is like trying to catch a greased pig - it might work, but it's not the most reliable way to evaluate a project!

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Royal

1 year ago

I think Option D is the way to go. Using the expected life of the asset in the denominator makes sense for the payback calculation.

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Dana

1 year ago

Option B is the correct answer. The payback method doesn't consider the overall profitability of the project, only the time it takes to recoup the initial investment.

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