IMANET CMA Exam - Topic 5 Question 90 Discussion

Actual exam question for IMANET's CMA exam

Question #: 90
Topic #: 5

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 ts 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%. Calamity Cauliflowers expected additional depreciation tax shield for the first year of the project is?

A$13,000

B$6,000

C$5,200

D$2,000

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 Reiko at Jun 24, 2024, 04:53 AM

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Raymon

6 months ago

Wait, how did they come up with these numbers? Seems off.

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Lenna

6 months ago

I agree, $6,000 sounds more realistic.

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Maurine

6 months ago

$13,000 seems way too high for the tax shield.

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Mozelle

7 months ago

I think the depreciation tax shield is crucial for cash flow!

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Sherell

7 months ago

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

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Shayne

7 months ago

I think the additional depreciation tax shield for the first year should be based on the new equipment's depreciation. I just can't remember the exact figures we used in class!

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Ahmad

7 months ago

I feel a bit lost with the numbers. I think we need to calculate the depreciation first, but I'm not confident about how the tax rate plays into it.

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Marvel

7 months ago

This question seems similar to one we practiced where we had to find the tax shield from depreciation. I think the straight-line method is key here.

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Pamella

8 months ago

I remember we talked about calculating depreciation and how it affects tax shields, but I'm not sure how to apply it here with the salvage value involved.

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Ellsworth

8 months ago

This is a classic capital budgeting problem. I've seen a lot of these before, so I feel pretty confident I can tackle this. I'll start by calculating the net present value of the project, then use that to figure out the depreciation tax shield.

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Stephaine

8 months ago

Hmm, the depreciation tax shield is the tricky part here. I'll need to make sure I calculate that correctly based on the information provided about the existing and new equipment. Once I have that, I think I can work backward to find the answer.

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Carin

8 months ago

Okay, let's see here. We've got the initial investment, the annual income, the salvage value, and the existing equipment that would be sold. I think if I can get all those numbers organized and plug them into the right formulas, I should be able to figure this out.

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Mitsue

8 months ago

This question looks pretty complex, with a lot of different factors to consider. I'll need to carefully go through the details and make sure I understand all the components before I can start solving it.

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Cherilyn

8 months ago

I'm a bit unsure about this one. The wording of the options is tricky, and I want to make sure I'm not missing any nuances in the access rights. I'll double-check my understanding before submitting my answer.

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Nieves

8 months ago

Wait, I'm a little confused. I thought Firepower Threat Defense supported more than just EIGRP and OSPF. I'll need to review the documentation to make sure I understand the supported protocols.

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Merilyn

8 months ago

I lean towards option B, thinking that it's a long-term capital gain since he held the stock for more than a year, but I worry about some other nuances we might have missed.

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Jenise

8 months ago

Okay, I remember learning about control charts in class. I think the key here is understanding that a point within the limits means the process is in control, so the correct answer is likely C or D.

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Brigette

1 year ago

Alright, let's do this! I've got my calculator and a fresh pot of coffee. Time to crunch some numbers!

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Kayleigh

11 months ago

D) $2,000

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Rodolfo

11 months ago

C) $5,200

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Tony

12 months ago

B) $6,000

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Hillary

12 months ago

A) $13,000

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Eulah

1 year ago

Calamity Cauliflower? Sounds like the name of a B-movie villain. I wonder if they also sell 'Pandemonium Potatoes' or 'Chaos Carrots'.

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Emerson

1 year ago

Hmm, this is a tricky one. I better double-check my depreciation calculations to make sure I don't miss anything.

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Temeka

11 months ago

I agree, the answer is A) $13,000.

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Candida

11 months ago

I think it's A) $13,000.

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Laquanda

12 months ago

A) $13,000

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Mable

1 year ago

I'm not sure, but I think I'll go with A) $13,000 as well. It seems to make sense based on the information provided.

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Lai

1 year ago

Wait, Calamity Cauliflower Corporation? Really? Is this some kind of joke? I hope the exam questions get more serious from here on.

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Tesha

1 year ago

Yeah, let's not get distracted. Do you have any idea what the answer might be?

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Lai

1 year ago

I know, the name is pretty funny. But let's focus on the question at hand.

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Jesusita

1 year ago

I agree with Carisa, the rationale is that the additional depreciation tax shield is calculated by taking the difference in depreciation between the new and old equipment.

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