IMANET-CMA Online Practice Questions and Answers

Which of the following is a true statement about packaging?

A. A customer ordinarily will not pay more for a better package

B. The package advertises the firm's and brand's image

C. Packaging identifies and describes the product and gives usage instructions

D. The package only provides the benefits associated with shipping and product protection

The dominant firm in a market pursues a market-leader strategy. This strategy may involve

A. Holding the market stable to avoid attracting new competitors

B. A flank defense to strengthen the firm's brand

C. Sending market signals as a mobile defense

D. Innovations as an offensive strategy

Which one of the following is not a characteristic of a negotiable certificate of deposit?

Negotiable certificates of deposit

A. Have a secondary market for investors.

B. Are regulated by the Federal Reserve System.

C. Are usually sold in denominations of a minimum of $100,000.

D. Have yields considerably greater than bankers' acceptances and commercial paper.

Obligations issued by federal agencies other than the U.S. Treasury Department are

A. Guaranteed by the U.S. government but not by the agency issuing the security.

B. Guaranteed neither by the agency issuing the security nor by the U.S. government.

C. Guaranteed by the agency issuing the security but not by the U.S. government.

D. Not easily marketed.

Hendnx, Inc. is interested in purchasing a $100 U.S. Treasury bill and was presented with the following options:

If Hendrix wishes to buy the Treasury bill at the lowest purchasing price, which option should be chosen, assuming a 360- day year?

A. Option 1.

B. Option 2.

C. Option 3.

D. Option 4.

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor1 and a reduction in unit material costs of 25%, with no change in selling price. After incorporating these changes, Madengrad Compans contribution margin would be

A. 34%

B. 69%

C. 36%

D. 64%

Associated Supply, Inc. is considering introducing a new product that will require a $250,000 investment of capital. The necessary funds would be raised through a bank loan atan interest rate of 8%. The fixed operating costs associated with the product would be $122,500, while the contribution margin percentage would be 42%. Assuming a selling price of $15 per unit, determine the number of units (rounded to the nearest whole unit) Associated would have to sell to generate earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new product.

A. 35,318 units.

B. 32,143 units.

C. 25,575 units.

D. 23,276 units.

Siberian Ski Company recently expanded its manufacturing capacity, which will allow it to produce upto 15,000 pairs of cross country skis of the mountaineering model or the touring model. The Sales Department assures management that it can sell between 9,000 pairs and 13000 pairs of either product this year. Because the models are very similar, Siberian Ski will produce only one of the two models. The following information was compiled by the Accounting Department

Fixed costs will total $369,600 if the mountaineering model is produced but will be only $316,800 if the touring model is produced. Siberian Ski is subject to a 40% income tax rate.If the Siberian Ski Company Sales Department could guarantee the annual sale of 12,000 pairs of either model, Siberian Ski would

A. Produce 12,000 pairs of touring skis because they have a lowerfixed cost.

B. Be indifferent as to which model is sold because each model has the same variable cost per unit.

C. Produce 12,000 pairs of mountaineering skis because they have a lower breakeven point.

D. Produce 12,000 pairs of mountaineering skis because they are more profitable.

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 projects. Ill. It uses cash flows to gauge the desirability of the project.

A.

l only.

B.

l and ll.

C.

Ill only.

D.

l, II,and III.

In order to increase production capacity, Gunning Industries is considering replacing an existing production

machine with a new technologically improved machine effective January 1. The following information is

being considered by Gunning Industries:

The new machine would be purchased for $160,000 in cash. Shipping, installation, and testing would cost

an additional $30,000.

The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit.

Incremental operating costs include $30 per unit in variable costs and total fixed costs of $40,000 per year.

The investment in the new machine will require an immediate increase in working capital of $35,000. This

cash outflow will be recovered after 5 years.

Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. The new

machine has an estimated useful life of 5 years and zero salvage value.

Gunning is subject to a 40% corporate income tax rate. Gunning uses the net present value method to

analyze investments and will employ the following factors and rates:

The overall discounted cash flow impact of Gunning Industries' working capital investment for the new production machine would be

A. $(7,959)

B. $(10,080)

C. $(13,265)

D. $(35,000)