IMANET CMA Exam - Topic 6 Question 105 Discussion

Actual exam question for IMANET's CMA exam

Question #: 105
Topic #: 6

A project requires an initial cash investment at its inception of $10,000, and no other cash outflows are necessary. Cash inflows from the project over its 3-year life are $6,000 at the end of the first year, $5,000 at the end of the second year, and $2,000 at the end of the third year. The future value interest factors for an amount of $1 at the firm's desired rate of return of 8% are

The present value interest factors for an amount of $1 for three periods are as follows:

The modified IRR (MIRR)for the project is closest to

A8%

B9%

C10%

D12%

Show Suggested Answer

Suggested Answer: D

Once an old piece of equipment has been disposed of, its histoncal cost no longer has an impact on a firms cash flows.

by Tamera at Jan 10, 2025, 03:35 AM

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Stevie

6 months ago

I agree, 10% seems right based on those numbers!

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Noe

6 months ago

Wait, how can the MIRR be 12% with those cash flows?

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Janessa

6 months ago

Definitely feels like it should be higher than 8%.

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Marg

7 months ago

I think the MIRR is closer to 10%.

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Janet

7 months ago

Initial investment is $10,000, cash inflows are $6,000, $5,000, and $2,000.

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Kristel

7 months ago

I feel like the answer might be around 10% based on the cash inflows, but I can't recall the exact calculation steps.

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Rory

7 months ago

I’m a bit confused about how to apply the future value factors here. Did we use those in the practice problems?

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Lindsey

7 months ago

I think the MIRR should be higher than the IRR since we have a negative cash flow at the start.

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Nickolas

8 months ago

I remember we did a similar question on MIRR in class, but I’m not sure if I calculated it right.

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Reena

8 months ago

I think I've got a good handle on this. I'll start by calculating the present value of each cash inflow, then add them up and compare to the initial investment. The MIRR should fall out from there.

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Mendy

8 months ago

Wait, what are the future value interest factors for? I thought we were supposed to be calculating present value. This question is tripping me up a bit.

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Merilyn

8 months ago

No problem, I've got this! The key is to discount the cash inflows to their present value using the given factors, then compare that to the initial investment. Should be straightforward.

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Elke

8 months ago

Hmm, I'm a bit confused by all the interest factors and formulas. I'll have to review my notes on MIRR to make sure I'm approaching this correctly.

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Nelida

8 months ago

Okay, this looks like a classic time value of money problem. I'll need to calculate the present value of the cash inflows and compare it to the initial investment to determine the MIRR.

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Mariann

1 year ago

I'm feeling confident about this one. It's like a math puzzle, and I love solving those!

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Sheridan

11 months ago

D) 12%

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Junita

11 months ago

C) 10%

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Quinn

11 months ago

B) 9%

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Jenifer

11 months ago

A) 8%

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Nicolette

1 year ago

Wait, what's the MIRR again? I should probably brush up on my financial formulas before the exam.

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Keva

11 months ago

D) 12%

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Victor

11 months ago

C) 10%

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Melodie

11 months ago

B) 9%

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Irving

12 months ago

A) 8%

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Therese

1 year ago

This question is perfect for the exam. It's challenging, but the information provided is clear and concise.

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Tasia

11 months ago

C) 10%

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Tracie

11 months ago

B) 9%

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Reuben

11 months ago

A) 8%

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Tawny

1 year ago

Hmm, the MIRR calculation seems tricky. I'd better double-check my work to make sure I get the right answer.

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Felicitas

12 months ago

I believe it's option C) 10%. What do you think?

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Elfriede

12 months ago

So, based on the cash flows and the required rate of return, we can calculate the MIRR to determine if the project is worth pursuing.

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Larae

12 months ago

So, which answer option do you think is closest to the MIRR for this project?

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Janae

1 year ago

Yes, that's correct. The MIRR takes into account the cost of capital and reinvestment rate. It provides a more accurate picture of the project's profitability.

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Cecil

1 year ago

That's correct. It's a more accurate measure of profitability compared to IRR.

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Alesia

1 year ago

I think the MIRR formula takes into account both the cost of the project and the reinvestment rate.

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Francis

1 year ago

I think the MIRR calculation involves adjusting for the cost of financing. It's not just a simple IRR calculation.

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Alesia

1 year ago

Okay, let's see... The given information includes the initial cash investment, cash inflows over the project's 3-year life, and the future value interest factors. I think I can work this out.

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Valentin

1 year ago

That's a good point, the timing of cash inflows does affect the MIRR calculation.

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Marnie

1 year ago

I disagree, I believe it's closer to 9% because of the cash inflows in the later years.

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Valentin

1 year ago

I think the MIRR for the project is closest to 10%.

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