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IMANET Exam CMA Topic 6 Question 82 Discussion

Actual exam question for IMANET's CMA exam
Question #: 82
Topic #: 6
[All CMA Questions]

The net present value method of capital budgeting assumes that cash flows are reinvested at

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Suggested Answer: B

The estimated incremental after-tax operating cash flows for each year of a capital project consist of two components: the after-tax cash inflows from operations and the depreciation tax shield arising from me purchase of new equipment. The first of these for Pelican can be calculated as follows:

Pelican's total incremental after-tax operating cash flows for each year of the project's

life is thus $106,000 ($90,000 + $16,000).


by Fausto at Mar 04, 2024, 08:30 AM

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Dottie
2 days ago
I was sure it was C, the rate of return of the project. Reinvesting at the project's rate of return seems logical. Oh well, time to review my notes again.
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Ming
4 days ago
Hmm, the correct answer must be D. The discount rate used in the analysis. Why would we reinvest at the risk-free rate or the cost of debt? That just doesn't make sense.
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Belen
8 days ago
I'm not sure, but I think the cash flows should be reinvested at the risk-free rate, so my answer is A).
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Desmond
10 days ago
I disagree, I believe the correct answer is D) the discount rate used in the analysis.
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Miesha
12 days ago
I think the answer is C) the rate of return of the project.
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