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IMANET CMA Exam Questions
- Topic 1: External Financial Reporting Decisions/ Financial Statement Analysis
- Topic 2: Technology and Analytics/ Professional Ethics/ Internal Controls
- Topic 3: Financial Planning, Performance, and Analytics
- Topic 4: Strategic Financial Management/ Performance Management
- Topic 5: Planning, Budgeting, and Forecasting/ Investment Decisions
- Topic 6: Decision Analysis/ Risk Management/ Cost Management/ Corporate Finance
Free IMANET CMA Exam Actual Questions
Note: Premium Questions for CMA were last updated On Nov. 22, 2024 (see below)
The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to insall. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,0O0 Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Moore Corporation should use in a capital budgeting analysis?
Initially, the company must invest $105,000 in the machine. Consisting of the invoice price of $90 00. the delivery costs of $6,000, and the installation costs of $9,000.
The U.S. Postal Service is looking for a new machine to help sort the mail. Two companies have submitted bids to Cliff Kraven, the postal inspector responsible for choosing a machine. A cash flow analysis of the two machines indicates the following:
It the cost of capital for the Postal Service is 8%. which of the two mail sorters should Cliff choose and why?
The NPV of both machines must be calculated and compared to determine which will yield a better return of cash flows. Machine A is calculated as one lump sum payable in 4 years minus the initial investment cost.
The NPV of Machine B is calculated as the present value of an ordinary annuity of
$13,000 for 4 years, minus the initial investment cost.
By comparing the NPV of both machines, Cliff would choose Machine A because NPV of A > NPV of B by $1,044.
The Dickins Corporation is considering the acquisition of a new machine at a cost of $180,000. Transporting the machine to Dickins' plant will cost $12,000. Installing the machine will cost an additional $18.000. It has a 10-year life and is expected to have a salvage value of $10,000. Furthermore, the machine Es expected to produce 4.000 units per year with a selling price of $500 and combined direct materials and direct labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value Dickins has a marginal tax rate of 40%. What is the net cash flow for the tenth year of the project that Dickins should use in a capital budgeting analysis?
The company will receive net cash inflows of $50 per unit ($500 selling price --- $450 of variable costs), a total of $200.000 per year for 4.000 units. This amount will be subject to taxation, as will the $10,000 gain on sale of the irwestrnent, resetting in taxable income of $210,000. No depreciation will be deducted in the tenth year because the asset was fully depreciated after 5 years. Because the asset was fully depreciated (book value was $0), the $10,000 received as salvage value is fully taxable. At 40%, the tax on $210,000 is $84,000. After subtracting $84000 of tax expense from the $210,000 of inflows the net inflows amount to $126,000.
Book rate of return is an unsatisfactory guide to selecting capital projects because
I . It uses accrual accounting numbers
II . It compares a single project against the average of capital rejects.
III . It uses cash flows to gauge the desirability of the project.
A common misstep in regard to capital budgeting is the temptation to gauge the desirability of a project by using accrual accounting numbers instead of cash flows. Net income and book value are affected by the compas choices of accounting methods. A project's true rate of return cannot be dependent on bookkeeping decisions. Another distortion inherent in comparing a single project's book rate of return to the current one for the company as a whole is that the latter is an average of all of a firm's capital projects. Embedded in that average number 'may be a hand Full of good projects melding up for a large number of poor investments.
The maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative is called?
An opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. In capital budgeting, the most basic application of this concept is the desire to place the company's limited funds in the most promising capital project(s).
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