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IMANET Exam CMA 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

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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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Laurel
1 months 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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Lavina
7 days ago
I believe it incorporates the time value of money.
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Rodolfo
20 days ago
I think it neglects total project profitability though.
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Annett
28 days ago
I agree, using accrual accounting inflows makes sense.
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Reyes
1 months 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 months 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
2 months 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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Chanel
15 days ago
That's right, the payback method focuses solely on how long it takes to recover the initial investment.
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Kathrine
20 days ago
B) Neglects total project profitability.
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Precious
2 months ago
Hmm, that's an interesting point. I can see how that could be a characteristic of the payback method.
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Arthur
2 months ago
I disagree, I believe the answer is C) Uses accrual accounting inflows in the numerator of the calculation.
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Precious
2 months ago
I think the answer is B) Neglects total project profitability.
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