CMA-Wiley Test Bank

Time Spent: 1:32:55 End
100 Answered 0 Unanswered

Score: 82%
(recorded 9/20/17 11:05am)
Question 1:
(2C1-AT09)
Specialty Cakes Inc. produces two types of cakes, a round cake and a heart-shaped cake. Total
fixed costs for the firm are $92,000. Variable costs and sales data for these cakes are presented
below.
How many cakes will be required to reach the breakeven point?

9,000 round cakes and 11,000 heart-shaped cakes.
The breakeven point in units can be calculated by dividing fixed costs by contribution margin
per unit. Since there are two products, we calculate the weighted contribution margin by
weighting the products' individual contribution margins by budgeted sales.
Weighted contribution margin = ((10,000 / 25,000) × $4) + ((15,000 / 25,000) × $5) = $4.60
Breakeven point (total number of units, round and heart shaped cakes) = $92,000 / $4.60 =
20,000 units (round and heart shaped cakes)
Round cakes: (10,000 / 25,000) × 20,000 = 8,000 round cakes

Heart-shaped cakes: (15,000 / 25,000) × 20,000) = 12,000 heart-shaped cakes.
Question 2:
(2F2-CQ02)
Julie is the senior management accountant for Hazelton Manufacturing, a multinational

telecommunications company. In an effort to expand operations overseas, Hazelton encourages
senior management to offer payment to foreign officials to win business. These payments are
classified as normal commission expenses by the accounting department. Julie recently
questioned whether these payments should be classified as commission expense since they
appear to be bribes to foreign officials. When Julie discussed the situation with the chief financial
officer, he stated these payments were not illegal and were expected within these foreign
countries.
When all employees are hired, they are required to sign the company code of conduct. In
addition, the company provides annual ethics training to all employees and each employee is
evaluated based on compliance with operational goals and ethical expectations. The company
provides an anonymous whistleblower hotline for employees to report concerns to management.
Julie believes that the company she works for has an ethical organizational culture.
Identify
Time a requirement
Spent: 1:32:55 of Section 406 of the Sarbanes-Oxley Act relevant in the Hazelton
Score: 82% End
Manufacturing case. 100 Answered
(recorded 9/20/17 11:05am) 0 Unanswered
The act requires a company to provide a whistleblowing hotline to report

ethics concerns.
The act requires employee training for maintaining an ethical organizational
culture.
The act requires senior financial officers to follow a code of ethics.
The act forbids an American company to pay bribes to foreign government
officials.
Section 406 of the Sarbanes-Oxley Act requires companies to adopt (or explain why they have
not adopted) a code of ethics for senior financial officers.
Question 3:
(2B3-LS53)
A company wishes to raise capital in the capital markets. They file the appropriate paperwork
and come to the point where they are ready to issue new shares of stock, commonly known as in
Initial Public Offering, or IPO. The market that the organization uses to sell these new shares of
stock is known as the:
Money market.
Sales market.
Primary market.
Secondary market.
The market that is used in the selling of new securities, including bonds and stocks, is called the
primary market. In the primary market, the investor typically purchases the newly issued
securities from the investment bank or syndicate underwriting the issue of the security for the
issuing company. The secondary market is the market an investor uses to purchase an asset
from another investor.
Question 4:
(2F1-AT03)
John Moore was recently hired as assistant controller of a manufacturing company. The company
controller, Nancy Kay, has forecasted a 16% increase in annual earnings however, during the last
quarter of the year, John estimates that the company will only report a 12% increase in earnings.
When he reports this to Nancy, she tells him that meeting the numbers won't be a problem. She
explains that there are several jobs in production that will finish after the end of the fiscal year
and she will record the associated revenue in the accounting system for the current year.
What is the first step that John Moore should take at this time?
Contact his lawyer to determine his rights.
Follow his organization's established policies regarding the resolution of this
type of conflict.
Notify the audit committee of the issue.
Discuss the issue with the CFO of another company, who does not know any
employees at John's company.
Before taking any steps, John Moore should check to see if his organization has established
policies regarding how to handle this type of conflict. If such policies exist, then he should
follow them.
Question
Time 5: 1:32:55
Spent:
(2B4-LS31)
Score: 82% End
(recorded 9/20/17 11:05am)
Which type of short-term financing allows a business to borrow up to a specified limit during a
particular time period?
Promissory note.
Line of credit.
Accrued expenses.
Bankers' acceptance.
By definition, a line of credit (or credit line) is an agreement allowing a firm to borrow up to a
specified limit during a particular time period. The borrower has access to the credit amount
(which is generally substantial) but pays interest only on actual borrowing.
Question 6:
(2E2-AT13)
If the net present value (NPV) of a capital budgeting project is positive, it would indicate that the:
present value divided by the initial cash outlay would be less than 100%.
present value (PV) of cash outflows exceeds the PV of cash inflows.
rate of return for this project is greater than the discount percentage rate
used in the NPV computation.
internal rate of return (IRR) is equal to the discount percentage rate used in
the NPV computation.
The NPV of a project is the PV of the projects cash flows calculated at the appropriate discount
rate less the project's initial investment (I). If the project has a IRR higher than the discount rate
used, the NPV will be positive. If the IRR = the discount rate, then NPV = 0. If the IRR < discount
rate, then NPV is negative.
Question 7:
(2C2-CQ28)
Milton Manufacturing occasionally has capacity problems in its metal shaping division, where the
chief cost driver is machine hours. In evaluating the attractiveness of its individual products for
decision-making purposes, which measurement tool should the firm select?
*Source: Retired ICMA CMA Exam Questions.
Contribution margin/Contribution margin ratio.

Gross profit margin/ Contribution margin.
Contribution margin/contribution margin per machine hour.
Contribution margin/machine hour Contribution margin ratio.
If unlimited machine hours are available to company would seek to maximize the total
contribution margin. If the machine hours are constrained the company must consider the
contribution margin per machine hour for each project to determine which projects would
maximize total contribution margin.
Question
Time 8: 1:32:55
Spent:
(2A4-AT04) Score: 82% End
(recorded 9/20/17 11:05am) 100 Answered 0 Unanswered
The Meade Corporation reports the following financial results.
Which of the following is correct?

Over the four year period, reported sales increased by 12%, but 10% was
caused by inflation.
Over the four year period, sales increased faster than cost of goods sold.
Inflation increased reported sales more than it increased reported cost of
goods sold.
The rate of inflation exceeded the increase in reported sales between Year 2
and Year 3.
From the given information, the inflation rate over the 4 years can easily be computed as 10%.
Change in inflation = (inflation, year 4 − inflation, year 1) / inflation, year 1

Change in inflation = (1.10 − 1.00)/1.00 = 0.10/1.00 = 0.1 or 10%
The increase in the inflation rate alone would have caused the sales to increase only to
$1,375,000, which is calculated as $1,250,000 × 1.10.
From the given information, the increase in sales can be computed as 12%, which is calculated
as:
Change in sales = (sales, year 4 − sales, year 1) / sales, year 1)

Change in sales = ($1,400,000 − $1,250,000)/$1,250,000
Change in sales = $150,000/$1,250,000 = 0.12 or 12%
Therefore, sales increased by 12% over the 4 year period, with 10% of the increase being
attributed to inflation.
Question 9:
(2C2-CQ07)
The total cost of producing 100 units of a good is $800. If a firm's average variable cost is $5 per
unit, then the firm's:
marginal cost is $8.
marginal cost is $3.
total variable cost is $300.
average fixed cost is $3.
We know that the total cost of producing 100 units is $800, therefore, we can compute the total
cost per unit as:
TotalSpent:
Time cost per unit = Total Cost / # of Units produced
1:32:55
Score: 82% End
Total cost per unit = $800
(recorded 9/20/17 11:05am) / 100 units = $8 per unit
Given in this problem is the average variable cost per unit of $5, therefore, we can rearrange the
following formula to determine the average fixed per unit:
Total cost per unit = Average Fixed cost per unit + Variable cost per unit
$8 = Average Fixed cost per unit + $5
Average Fixed cost per unit = $3
Total variable costs = $500 ($5 per unit × 100 units)
The marginal cost is neither $3 nor $8 because marginal cost is defined as the cost change in
producing one more unit. The way fixed costs react to adding more units of production is by
allocating the total fixed costs over more units, thus average fixed cost per unit would decrease.
Question 10:
(2C2-AT20)
Kator Co. is a manufacturer of industrial components. One of their products that is used as a sub-
component in auto manufacturing is KB-96. This product has the following financial structure per
unit.
Kator Co. has received a one-time special order for 1,000 KB-96 parts. Assuming Kator has excess
capacity and the special order customer does not compete with Kator's "regular" customers, the
minimum price that is acceptable for this one-time special order is in excess of:
$47.
$50.
$90.
$77.
Kator should accept the special order if its price is greater than its opportunity cost per unit.
The opportunity cost per unit consists of avoidable variable and avoidable fixed costs per unit
and the unit cost of any lost opportunities. Since there is excess capacity, there are no
avoidable fixed costs nor are there any lost opportunities.
The only relevant costs are the avoidable variable costs of $50.
Avoidable variable costs = $20 direct materials + $15 direct labor + $12 variable manufacturing
overhead + $3 shipping and handling = $50.
Question 11:
(2A4-LS04)
A European company provides annual reports for U.S. investors purchasing ADRs of the
company's stock in the United States. The company reports €1,500,000 net income. The exchange
rate between the euro and the U.S. dollar is €1.19/$1. Which of the following statements is true?
Time Spent: 1:32:55Annual statements sent to U.S. investors will show net income as $1,260,504. End
Score: 82%
(recorded 9/20/17 11:05am)
Annual statements sent to U.S. investors will show net income as $1,500,000.
Annual statements sent to U.S. investors will show net income as €1,500,000.
Annual statements sent to U.S. investors will show net income as $1,785,000.
Financial statements generally do not make adjustments for foreign currency exchange rates,
as this would show wild fluctuations due to the exchange rate rather than company
performance.
Question 12:
(2B2-LS29)
Viable short-term financing options for a pharmaceutical company include all of the following
except:
issues of preferred stock.
trade credit.
bankers' acceptances.
commercial paper.
By definition, short-term financing refers to the use of debt instruments that mature in one year
or less. Stock is an equity investment instrument.
Question 13:
(2B4-LS42)
If a company receives trade credit terms of 1/10 net 45, the effective annual rate (assuming that
there are 365 days in a year) for foregoing the trade credit discount is closest to:
10.39%.
10.43%.
8.11%.
10.53%.
By substituting the appropriate inputs into the following formula, the opportunity cost of giving
up a discount is:
Question 14:
(2B6-LS25)
The latest quarterly trade report indicates that the U.S. exported £360 billion to England and
imported €400 billion from Germany. If the exchange rate is $1.82 per £ and $1.26 per €, we know
that the U.S.:
has an overall trade surplus of $151.2 billion with these two countries.
has an overall trade deficit of $274.4 billion with these two countries.
has an overall trade deficit of $151.2 billion with these two countries.
has an overall trade surplus of $274.4 billion with these two countries.
In order to calculate the U.S. trade balance with England and Germany, we need to convert the
net export
Time Spent:and net import with these countries into U.S. dollars first.
1:32:55
Score: 82% End
Since the U.S. trade balance with these two countries is positive, the U.S. has a trade surplus of
$151.2 billion.
Question 15:
(2A3-LS10)
An increase in the gross profit margin for a merchandising firm indicates that the firm:
is increasing its revenues.
is decreasing its fixed costs.
has been managing its quality control better, which results in fewer returns.
is doing a better job of managing cost of sales.
An increase in the gross profit margin indicates that the firm is doing a better job of managing
cost of sales.
Question 16:
(2A3-CQ02)
Tech Manufacturing Company realized $15,000,000 in sales, with a cost of goods sold of
$6,000,000, and operating expenses of $4,500,000. Their operating profit margin would be:
25%.
35%.
30%.
40%.
Operating profit margin is computed by taking Operating Income/Sales. Operating income is

computed by taking the total sales of $15,000,000, less the cost of goods sold of $6,000,000, less
the operating expenses of $4,500,000, which equals $4,500,000. Take the operating income of
$4,500,000 and divide by the sales of $15,000,000, and the operating profit margin is 30%.
Question 17:
(2A1-LS01)
Which of the following statements is true regarding common-size statements?

Common-size statements indexed over two years for two companies, with
both showing a 10% increase in profits, show that both companies would
make equally attractive investments.
All of the other three answers are correct.
Common-size statements can be used to compare companies of different
sizes.
Horizontal common-size statements can be made only for companies with at
least ten years of operational data.
Common-size statements showing a 10% increase in profits for two companies do not alone
indicate that both are equally attractive investments. One of the companies may have shown
an increase in profits from $10 to $11, while the other may have shown an increase in profits
from $1,000,000 to $1,100,000. Horizontal common-size statements do not require ten years of
data.
Question
Time 18:1:32:55
Spent:
(2A1-CQ01)
Score: 82% End
(recorded 9/20/17 11:05am)
Gordon has had the following financial results for the last four years.
Gordon has analyzed these results using vertical common-size analysis to determine trends. The
performance of Gordon can best be characterized by which one of the following statements?
The common-size trend in sales is increasing and is resulting in an increasing

trend in the common-size gross profit margin.
The increased trend in the common-size gross profit percentage is the result
of both the increasing trend in sales and the decreasing trend in cost of
goods sold.
The common-size gross profit percentage has decreased as a result of an
increasing common-size trend in cost of goods sold.
The common-size trend in cost of goods sold is decreasing which is resulting
in an increasing trend in the common-size gross profit percentage.
Gross profit percentage is calculated as:
Gross profit percentage = (gross profit) / (sales)

Gross profit percentage in year 1 = $500,000 / $1,250,000 = 40%
Gross profit percentage in year 2 = $515,000 / $1,300,000 = 39.6%
The decrease in gross profit percentage is caused by an increasing common-size (percent of

sales) trend in cost of goods sold.
Question 19:
(2E2-CQ35)
Lunar Inc. is considering the purchase of a machine for $500,000 which will last 5 years. A
financial analysis is being developed using the following information.
The machine will be depreciated over 5 years on a straight-line basis for tax purposes and Lunar
is subject to a 40% effective income tax rate. Assuming Lunar will have significant taxable income
from other
Time Spent:lines of business, and using a 20% discount rate, the net present value of the project
1:32:55
Score: 82% End
would be:
$(282,470).
$(103,070).
$(14,010).
$16,530.
The depreciation per year on the machine = $100,000, which is calculated by taking the
purchase value of $500,000 and dividing it by 5 years.
The cash flows for each year are calculated as follows:

Annual cash flow = (pre-tax cash flow − deprecation expense)(1 − tax rate) + (depreciation
expense)
Cash flow, Year 1 = ($50,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 1 = (−$50,000)(0.6) + $100,000 = −$30,000 + $100,000 = $70,000
Cash flow, Year 2 = ($50,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 2 = (−$50,000)(0.6) + $100,000 = −$30,000 + $100,000 = $70,000
Cash flow, Year 3 = ($400,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 3 = (−$300,000)(0.6) + $100,000 = −$180,000 + $100,000 = $280,000
Cash flow, Year 4 = ($400,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 4 = (−$300,000)(0.6) + $100,000 = −$180,000 + $100,000 = $280,000
Cash flow, Year 5 = ($400,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 5 = (−$300,000)(0.6) + $100,000 = −$180,000 + $100,000 = $280,000
The net present value (NPV) of the project can then be calculated as follows:
PV of Year 0 cash flow = −$500,000

PV of Year 1 cash flow = $70,000(0.833 PV lump sum i=20, n=1) = $58,310
PV of Year 5 cash flow = $280,000(0.402 PV i=20, n=5) = $112,560
The sum of these cash flows, which is also the net present value of the project, is $16,530.
Question 20:
(2E2-CQ24)
The net present value (NPV) figures for projects A and B are as follows for a range of discount
rates.
Score: 82%
(recorded 9/20/17 11:05am)
The approximate internal rates of return (IRR) for Projects A and B, respectively, are:
20.5% and 26.5%.

0% and 0%.
19.0% and 21.5%.
19.5% and 25.5%.
The IRR is the discount rate at which the NPV is equal to zero.
For project A, the IRR, by interpolation = 18% + [(77)/(77 +26)](2%)

Project A, IRR = 18% + (154/103)% = 18% + 1.495% = 19.495%, or 19.5%
For project B, the IRR, by interpolation = 24% + [(30)/(30 + 11)](2%)

Project B, IRR = 24% + (60/41)% = 24% + 1.463% = 25.463%, or 25.5%.
Question 21:
(2B1-LS15)
According to the capital asset pricing model (CAPM), the expected risk premium of a portfolio
varies:
based on investor attitudes toward risk.
based on the number of securities in the portfolio.
in direct proportion to beta in a competitive environment.
in direct proportion to the prime interest rate.
The CAPM implies that the risk premium varies in direct proportion to beta in a competitive
market. The expected risk premium for each investment in a portfolio should increase in
proportion to its beta. This means that all investments in a portfolio should plot along an
upward sloping line, known as the security market line.
Question 22:
(2B1-AT05)
Using the Capital Asset Pricing Model (CAPM), the required rate of return for a firm with a beta of
1.25 when the market return is 14% and the risk-free rate is 6% is:
16%.
7.5%.
14%.
17.5%.
Score: 82%
(recorded 9/20/17 11:05am)
The formula for the CAPM is stated as:
Ke = Rf + β (Km-Rf)
Where:
Ke = required rate of return

Rf = risk-free rate (such as the return on U.S. T-bills or T-bonds)
β = beta coefficient for the company
Km = return on a market portfolio
Therefore, Ke = 0.06 + (1.25)(0.14 − 0.06) = 0.06 + (1.25)(0.08) = 0.06 + 0.10 = 0.16 (16%).
Question 23:
(2E2-CQ06)
Colvern Corporation is considering the acquisition of a new computer-aided machine tool to

replace an existing, outdated model. Relevant information includes the following.
Annual after-tax cash flows for the project would amount to:
$22,800.
$17,040.
$5,600.
$7,440.
The annual cash flow from the investment is calculated as:

Annual cash flow = (projected cash savings − change in depreciation)(1 − tax rate) + (change in
depreciation
Change in depreciation = new depreciation expense − old depreciation expense

Change in depreciation = $16,000 − $1,600 = $14,400
Annual cash flow = ($28,400 − $14,400)(1 − 0.4) + ($14,400)

Annual cash flow = $14,000(0.6) + $14,400 = $8,400 + $14,400 = $22,800.
Question 24:
(2D1-LS37)
The key components of enterprise risk management (ERM) include all of the following except:
Assess risks.
Monitor risk.
Improved shareholder value.
Set strategy and objectives.
Improve shareholder value is not a key component of ERM although it is often a direct benefit of
effective ERM implementations. The basic components found in most ERM frameworks include:
set strategy and objectives, identify risks, assess risks, treat risks, control risks, and
communicate and monitor.
Question
Time 25:1:32:55
Spent:
(2C1-CQ09) Score: 82% End
Cervine Corporation makes two types of motors for use in various products. Operating data and
unit cost information for its products are presented below.
Cervine has 40,000 productive machine hours available. The relevant contribution margins, per
machine hour for each product, to be utilized in making a decision on product priorities for the
coming year, are:
Product A - $37.00; Product B - $24.00.

Contribution per machine hour is calculated as:

Contribution per machine hour = (unit contribution margin)/(machine hours per unit)
Unit contribution margin (CMU) = selling price − unit variable costs
Unit variable costs, Product A = ($53 + $10) = $63

CMU, Product A = ($100 − $63) = $37
Product A's contribution per machine hour = $37 / 2 hours = $18.50 per hour
Unit variable costs, Product B = ($45 + $11) = $56

The CMU for Product B = ($80 − $56) = $24
Product B's contribution per machine hour = $24 / 1.5 hours = $16.00 per hour.
Question 26:
(2B1-LS08)
Which of the following best describes a stock with a beta greater than 1.0?
Returns on the stock will most likely vary more than market returns.
Returns on the stock will move in the same direction as the market but not as
far.
The stock incurs the same level of unsystematic risk as stocks with similar
credit ratings.
The stock incurs the same level of systemic risk as stocks with similar credit
ratings
The average beta of all
100stocks is 1.0. Stocks with a beta greater than 1.0 are 0unusually
Answered Unanswered sensitive
Score: 82%
(recorded 9/20/17 11:05am)
to market movements and amplify overall market movements.
Question 27:
(2E2-CQ18)
Calvin Inc. is considering the purchase of a new state-of-art machine to replace its hand-operated
machine. Calvin's effective tax rate is 40%, and its cost of capital is 12%. Data regarding the
existing and new machines are presented below.
The existing machine has been in service for seven years and could be sold currently for $25,000.
If the new machine is purchased Calvin expects to realize a $30,000 before-tax annual reduction
in labor costs.
If the new machine is purchased, what is the net amount of the initial cash outflow at Time 0 for
net present value calculation purposes?
$65,000.
$75,000.
$100,000.
$79,000.
The initial cash outflow at time 0 is calculated as follows:
Initial cash outflow = (cost of machine) + (installation costs) + (freight and insurance) −
(proceeds from sale of existing machine) + (tax from sale of machine)
Tax from sale of machine = (tax rate)(proceeds from sale − net book value)
Net book value, end of year 7 = (original cost)(% of life remaining)
Net book value, end of year 7 = ($50,000)(0.3) = $15,000
Tax from sale of machine = (0.4)($25,000 - $15,000) = $4,000
Initial cash outflow = ($90,000) + ($4,000) + ($6,000) − ($25,000) + ($4,000).

Initial cash outflow = $79,000
Question 28:
(2C1-AT05)
Manders Manufacturing Corporation uses the following model to determine its product mix for
metal (M) and scrap metal (S).
The point where M = 2 and S = 3 would:

Time Spent: 1:32:55lie in a corner. End
Score: 82%
(recorded 9/20/17 11:05am)be100 Answered
a feasible point. 0 Unanswered
be the optimal solution point.

be an infeasible point.
This problem involves the use of linear programming. Linear programming is a problem-solving
approach used in situations in which managers need to make decisions about how to maximize
profits or minimize costs, based upon certain constraints. It can also be used to solve a variety
of other issues, such as optimal resource allocation.
The first step in linear programming is to establish the objective function and constraints.
In this problem, Max Z = $30M + $70S is the objective function. Manders Manufacturing produces
products M and S, and is using linear programming to determine its optimal product mix.
The constraints in this problem are:

3M + 2S ≤ 15
2M + 4S ≤ 18
Non-negativity constraints: M, S ≥ 0
The problem can be solved by using algebra, aided by graphing.
Start by calculating potential values for X and Y at the two ends of possibilities, first by
assuming that X is zero, and then assuming that Y is zero.
First constraint:
3M + 2S ≤ 15
3(0) + 2S ≤ 15
2S ≤ 15
S ≤ 7.5
So, the graph line for the first constraint will intersect the Product S axis at 7.5 units.
3M + 2S ≤ 15
3M +2(0) ≤ 15
3M ≤ 15
M≤5
So, the graph line for the first constraint will intersect the Product M axis at 5 units.
Second constraint:
2M +Spent:
Time 4S ≤ 181:32:55
Score: 82% End
(recorded4S
2(0) + ≤ 1811:05am) 100 Answered
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4S ≤ 18
S ≤ 4.5
So, the graph line for the second constraint will intersect the Product S axis at 4.5 units.
2M + 4S ≤ 18
2M + 4(0) ≤ 18
2M ≤ 18
M≤9
So, the graph line for the second constraint will intersect the Product M axis at 9 units.
The optimal solution is at a vertex, or intersection of these two constraint lines. However, any
point within the “feasible space” can be attained, although it will not be optimal. The point
M=2, S=3 is within the feasible space, so it is attainable and is therefore considered to be a
feasible point.
Question 29:
(2A1-AT05)
The controller of OmniCorp asked a financial analyst to calculate common size financial
statements for the past four years. The controller is most likely looking for which of the following?
How the company is earning its profits.
The growth rate for sales.
Trends in expenses as a percentage of sales.
How efficiently the company is using assets.
Common size financial statements look at each element in the statement as a percentage of
another total amount. Common size income statements show expenses as a percent of sales,
while common size balance sheets show assets, liabilities, and equities as a percent of total
assets. A series of common size income statements will show trends in expenses as a
percentage of sales.
Question 30:
(2F2-LS03)
Identify which items below may communicate to employees a corporate responsibility for ethical
conduct:
I. Defining organizational values.

II. Leading by example.
III. Communicating legal acts.
IV. Improving ethical compliance.
I, II, and III, only.

I, II and IV, only.
II and IV, only.
I and III, only.
There are five primary categories for management to focus on in order to effectively maintain
the desired ethical atmosphere. These can communicate a corporate responsibility for ethical
conduct and are; defining values, leadership by example, ethics and internal controls, practical
application, and measuring and improving ethical compliance.
Question
Time 31:1:32:55
Spent:
(2E2-AT15) Score: 82% End
Willis Inc. has a cost of capital of 15% and is considering the acquisition of a new machine which
costs $400,000, has a useful life of five years, and a zero estimated final salvage value. Willis
projects that earnings and cash flow will as follows:
The net present value (NPV) of this investment is:

$(64,000).
$18,600.
$200,000.
$600,000.
The NPV of a project is calculated by taking the project's initial investment (I) and adding the
present value (PV) of future after-tax cash flows.
To calculate NPV for this project, use the PV of $1 interest rate factors (at 15%), since the cash
flows over the 5 year period are not equal.
NPV = − $400,000 + ($160,000)(0.87) + ($140,000)(0.76) + ($100,000)(0.66) + ($100,000)(0.57) +

($100,000)(0.50)
= − $400,000 + $139,200 + $106,400 + $66,000 + 57,000 + 50,000 = $18,600.
Question 32:
(2D1-CQ02)
A firm is constructing a risk analysis to quantify the exposure of its data center to various types of
threats. Which one of the following situations would represent the highest annual loss exposure
after adjustment for insurance proceeds?
Frequency of Occurrence: 1 year
Loss Amount: $15,000
Insurance Coverage: 85%.
Frequency of Occurrence: 100 years
Time Spent: 1:32:55Insurance Coverage: 80%. Score: 82% End
The situation would represent the highest annual loss exposure after the adjustment for
insurance is the one with a Frequency of Occurrence of 1 year. The expected annual loss would
be 12,750 [15,000(.85)]. The expected annual loss for Frequency of Occurrence of 8 years =
(75,000/8)(.8) = 9,375(.8) = 7,500. The expected annual loss for Frequency of Occurrence of 20
years = (200,000/20)(.8) = 100,000(.8) = 8,000. The expected annual loss for Frequency of
Occurrence of 100 years = (400,000/100)(.5) = 4,000(.5) = 2,000.
Question 33:
(2B3-CQ05)
Kalamazoo Inc. has issued 25,000 shares of its authorized 50,000 shares of common stock. There
are 5,000 shares of common stock that have been repurchased and are classified as treasury
stock. Kalamazoo has 10,000 shares of preferred stock. If a $0.60 per share dividend has been
authorized on its common stock, what will be the total common stock dividend payment?
$21,000.
$15,000.
$30,000.
$12,000.
The dividend paid would be $0.60 per share, multiplied by the number of shares outstanding.
The number of outstanding shares is calculated by taking the number of issued shares and
subtracting the number of share that were repurchased and held in treasury.
Number of shares = # shares issued − # shares of treasury stock

Number of shares = 25,000 − 5,000 = 20,000
Dividend: ($0.60 per share)(20,000 shares) = $12,000.
Question 34:
(2A2-AT42)
Which one of the following factors would likely cause a firm to increase its use of debt financing
as measured by the debt-to-total-capitalization ratio?
an increase in the corporate income tax rate.
an increase in the degree of operating leverage.
increased economic uncertainty.
a decrease in times interest earned.
The tax deductibility of the interest on debt reduces the effective cost of the debt by (1 − tax
rate). The attractiveness of debt, therefore, increases with the tax rate.
Question 35:
(2A2-LS50)
All of the following are affected when merchandise is purchased on credit except:
current ratio.
total current assets.
net working capital.
Time Spent: 1:32:55total current liabilities. End
Score: 82%
(recorded 9/20/17 11:05am)
When merchandise is purchased on credit, total current assets increase and total current
liabilities increase by the same amount . . . therefore, the net working capital (current assets −
current liabilities remains the same when merchandise is purchased on credit. The current
ratio, however, will change.
Question 36:
(2B2-AT10)
Which one of the following statements is correct when comparing bond financing alternatives?
A call provision is generally considered detrimental to the investor.
A call premium requires the investor to pay an amount greater than par at
the time of purchase.
A convertible bond must be converted to common stock prior to its maturity.
A bond with a call provision typically has a lower yield to maturity than a
similar bond without a call provision.
A call provision allows the issuer of the bonds to buy back the bonds at a set price (the call
price) after some specified date. Calls are used to redeem bonds when interest rates drop
significantly or to force the conversion of convertible bonds. When the bonds are called for
redemption, the holder (investor) must sell them back to the issuer. The holder, however, may
want to hold the bonds to earn interest to improve the conversion gain.
Question 37:
(2B4-CQ26)
On June 30 of this year, Mega Bank granted Lang Corporation a $20 million 5-year term loan with
a floating rate of 200 basis points over Treasury Bill rates, payable quarterly. The loan principal is
to be repaid in equal quarterly installments over the term. If Treasury Bills are expected to yield
6% for the rest of the year, how much will Lang pay to Mega Bank in the last half of this year?
$1,800,000.
$2,780,000.
$3,170,000.
$2,800,000.
Lang will pay Mega Bank $1,400,000 in the 3rd quarter which will be comprised of $1,000,000 in
principal repayment, plus interest of $400,000, which is calculated as:
Interest, 3rd quarter = (0.08)($20,000,000)(3/12) = $400,000
Lang will pay Mega bank $1,380,0000 in the 4th quarter which will be comprised of $1,000,000 in
principal repayment, plus interest of $380,000, which is calculated as:
Interest, 4th quarter = (0.08)($20,000,000 − $1,000,000)(3/12) = $380,000
Payments in the 3rd and 4th quarter = $1,000,000 + $400,000 + $1,000,000 + $380,000
Payments in the 3rd and 4th quarter = $2,780,000.
Question 38:
(2E3-LS13)
Which one of the following is not a shortcoming of the payback method?

Time Spent: 1:32:55It ignores the time value of money. End
Score: 82%
(recorded 9/20/17 11:05am)It offers no consideration of cash flows beyond the expiration of the payback
period.
It offers no indication of a project's liquidity.
It encourages establishing a short payback period.
It offers no indication of a project's liquidity. The payback method in capital budgeting

determines the number of years needed to recoup the net initial investment in a capital
budgeting project. It focuses on how fast the initial investment can be recovered (liquidity).
Payback ignores the time value of money, the life of the project, and promotes short-term
thinking.
Question 39:
(2C2-LS39)
In differential cost analysis, which one of the following best fits the description of a sunk cost?
Direct materials required in the manufacture of a table.

Purchasing department costs incurred in acquiring material.
Cost of the forklift driver to move the material to the manufacturing floor.
Cost of a large crane used to move materials.
In a differential cost analysis, the cost of a large crane used to move materials would be
classified as a sunk cost. It is a fixed cost incurred whether you move the material or not.
Question 40:
(2B2-AT17)
Williams Inc. is interested in measuring its overall cost of capital and has gathered the following
data. Under the terms described below, the company can sell unlimited amounts of all
instruments.
Williams can raise cash by selling $1,000, 8%, 20-year bonds with annual interest payments.
In selling the issue, an average premium of $30 per bond would be received, and the firm
must pay flotation costs of $30 per bond. The after-tax cost of funds is estimated to be
4.8%.
Williams can sell 8% preferred stock at par value, $105 per share. The cost of issuing and
selling the preferred stock is expected to be $5 per share.
Williams' common stock is currently selling for $100 per share. The firm expects to pay cash
dividends of $7 per share next year, and the dividends are expected to remain constant. The
stock will have to be underpriced by $3 per share, and flotation costs are expected to
amount to $5 per share.
Williams expects to have available $100,000 of retained earnings in the coming year; once
these retained earnings are exhausted, the firm will use new common stock as the form of
common stock equity financing.
Williams preferred capital structure is
The cost of funds from the sale of common stock for Williams Inc. is:
Time Spent: 1:32:557.4%. End
Score: 82%
(recorded 9/20/17 11:05am)7%.
8.1%.
7.6%.
Using the constant dividend growth model (Gordon's model), the cost of the sale of common
stock (Ke) is calculated by taking the next dividend payment and dividing it by the net price
(price less discount, less flotation costs) plus the constant dividend growth rate. There is no
dividend growth rate for Williams.
For Williams, Ke= $7/($100-$3-$5) = $7/$92 = .076, or 7.6%.
Question 41:
(2B3-CQ04)
James Hemming, the chief financial officer of a Midwestern machine parts manufacturer, is
considering splitting the company's stock, which is currently selling at $80.00 per share. The stock
currently pays a $1.00 per share dividend. If the split is two-for-one, Mr. Hemming may expect the
post split price to be:
greater than $40.00, if the dividend is changed to $0.55 per new share.
exactly $40.00, regardless of dividend policy.
less than $40.00, regardless of dividend policy.
greater than $40.00, if the dividend is changed to $0.45 per new share.
The price of a common stock is calculated by taking the present value of its projected dividend
stream, computed using the expected return on the stock. If, during a two-for-one stock split,
the dividend is split two-for-one to $0.50 per share, then the stock price will become half of its
current value, or $40. If the dividend is cut by less than 50%, to $0.55 in this case, then the stock
price after the split will be greater than $40 per share.
Question 42:
(2E2-LS01)
According to the time value of money, all of the following statements about a $100,000
equipment investment with the potential for an 8% return are true except:
The opportunity cost is the $8,000 foregone if the investment is not made.
Funds for additional capital investment may be required to meet the 8%
return.
The anticipated effects of inflation must be taken into account.
The investment will be worth $108,000 at the end of the year.
The time value of money implies that a dollar (or any other monetary unit) is worth more today
than a dollar received tomorrow because that dollar can be invested today to earn a return.
Conversely, a dollar tomorrow is worth less than a dollar today because of the interest
foregone.
Question 43:
(2A2-CQ07)
Dedham Corporation has decided to include certain financial ratios in its year-end annual report
to shareholders. Selected information relating to its most recent fiscal year is provided below.
Score: 82%
(recorded 9/20/17 11:05am)
Dedham's quick (acid-test) ratio at year end is:
2.00 to 1.
1.05 to 1.
1.80 to 1.
1.925 to 1.
The quick ratio, or acid test ratio, is defined as follows:

Quick ratio = (current assets − inventories − prepayments) / (current liabilities)
Current assets = (cash + receivables + pre-paid expenses + inventory + available-for-sale

securities at fair value)
Current Assets = $10,000 + $20,000 + $8,000 + $30,000 + 12,000 = $80,000
Current liabilities = (accounts payable + 90 day notes payable)

Current liabilities = $15,000 + $25,000 = $40,000
Quick Ratio = (Current assets − Inventory − Prepayments) / Current Liabilities

Quick Ratio = ($80,000 - $30,000 − $8,000) / $40,000
Quick Ratio = $42,000/$40,000 = 1.05 or 1.05 to 1.
Question 44:
(2C1-CQ21)
Robin Company wants to earn a 6% return on sales after taxes. The company's effective income
tax rate is 40%, and its contribution margin is 30%. If Robin has fixed costs of $240,000, the
amount of sales required to earn the desired return is:
$400,000.
$1,200,000.
$1,000,000.
$375,000.
This problem can be solved by setting up an equation and solving for the required sales
amount.
S = required sales
[(contribution margin ratio)(S) − fixed costs](1 − tax rate) = (% return)(S)
[(0.3)(S) − $240,000](1 − 0.4) = (0.06)(S)

(0.3S − $240,000)(0.6) = 0.06S
0.18S − $144,000 = 0.06S
0.12SSpent:
Time = $144,000
1:32:55
Score: 82% End
S = $1,200,000.
Question 45:
(2A2-CQ14)
Cornwall Corporation's net accounts receivable were $68,000 and $47,000 at the beginning and
end of the year, respectively. Cornwall's condensed Income Statement is shown below.
Cornwall's average number of days' sales in accounts receivable (using a 365-day year) is:
23 days.
13 days.
8 days.
19 days.
The average number of days in accounts receivable is calculated as:
Average number of days in accounts receivable = (# days in a year) / (the accounts receivable
turnover per year)
Accounts receivable turnover per year = (Net credit sales for year) / (average accounts
receivable balance for the year)
Average accounts receivable balance for the year = (beginning balance + ending balance) / 2
Average accounts receivable balance for the year = ($68,000 + $47,000) / 2 = $115,000 / 2 =
$57,500
Accounts receivable turnover per year = $900,000 / $57,500 = 15.65 times per year
Average number of days in accounts receivable = 365 days / 15.65 times = 23 days.
Question 46:
(2E4-LS09)
Which of the following broadly defines simulation methodologies in evaluating projects?

Allows for the testing of a capital investment project using hypothetical
variables to approximate cash flow.
A separation of the timing of cash flows from their risk to evaluate a projects
success.
A what-if technique for evaluating how NPV, IRR, and other indicators of the
profitability of a project change if some given variable varies from one case
to another.
It uses repeated random sampling and computational algorithms to
calculate a range of most likely outcomes for a project.
A simulation approach for evaluating the success of a project allows for the testing of a capital
investment projects using hypothetical variables to approximate cash flow.
Score: 82%
Question
(recorded 47: 11:05am)
9/20/17 100 Answered 0 Unanswered
(2C3-LS09)
The equilibrium price of music CDs is $12, with XYZ Recordings selling 1,000,000 CDs per month.
When XYZ Recordings changes its price to $13 per CD, sales drop to 800,000 CDs per month. What
is the price elasticity of demand for CDs?
0.4.
2.5.
2.78.
2.
The price elasticity of demand for CDs is 2.78, calculated as follows:
200,000 200
(1,000,000 + 800,000)/2 900 200(12.5)
= = = 2.78
1 1 900
(12 + 13)/ 2 12.5
Question 48:
(2C1-CQ03)
Parker Manufacturing is analyzing the market potential for its specialty turbines. Parker
developed its pricing and cost structures for their specialty turbines over various relevant ranges.
The pricing and cost data for each relevant range are presented below.
Which one of the following production/sales levels would produce the highest operating income
for Parker?
8 units.
17 units.
14 units.
10 units.
The operating income for the sale of 8 units is calculated as follows:

Operating income, 8 units = (price − variable cost)(8 units) − fixed costs
Operating income, 8 units = ($100,000 − $50,000)(8 units) − $400,000 = $0
The operating income for the sale of 10 units is calculated as:

Operating income, 10 units = (price − variable cost)(10 units) − fixed costs
Operating income, 10 units = ($100,000 − $50,000)(10 units) - $400,000 = $100,000
The operating income for the sale of 14 units is calculated as:

Operating income, 14 units = (price − variable cost)(14 units) − fixed costs.
Operating income, 14 units = ($100,000 − $45,000)(14) − $600,000 = $170,000
The operating
Time Spent: 1:32:55income for the sale of 17 units is calculated as:
Score: 82% End
(recorded 9/20/17 11:05am)17100
Operating income, units = (price − variable cost)(17 units) − fixed costs 0 Unanswered
Answered
Operating income, 17 units = ($100,000 − $45,000)(17 units) − $800,000 = $135,000
A volume of 14 units produces the highest operating income for Parker.
Question 49:
(2B5-AT32)
All of the following transactions can be classified as divestitures except the sale of:
an operating division to another firm in exchange for cash and preferred
stock.
a company's inventory in the normal course of business.
a subsidiary's assets for cash with the buyer also assuming any liabilities.
an operating division to a group of managers in a leveraged buyout.
A divestiture is the selling of all or part of a company, not the selling of its inventory in the
normal course of business.
Question 50:
(2B4-LS28)
What is the effective annual interest rate on a $5 million loan with an interest rate of 8%, a
commitment fee of ¼ %, and a compensating balance of 10%?
11.11%.
9.17%.
8.64%.
8%.
The formula for effective annual rate of interest is:
PR + CF .0825
El = = = 9.17%
1 − CB .9
Where:
EI = effective annual rate of interest

PR = principal interest charge (%)
CB = compensating balance (%)
CF = commitment fee (%)
Question 51:
(2A3-AT02)
Anderson Cable wishes to calculate their return on assets (ROA). You know that the return on
equity (ROE) is 12% and that the debt ratio is 40%. What is the ROA?
20%.
4.8%.
7.2%.
12%.
Time Spent: 1:32:55 Score: 82% End
(recorded 9/20/17this,
11:05am) 100 Answered 0 Unanswered
To analyze use the DuPont model for ROE.
DuPont ROE model = ROA × (Average Assets/Equity)
Since the debt ratio is 0.40, then assets/equity would be 1/0.60. So ROA would then equal 0.60
multiplied by the ROE, or 0.60 × 12% = 7.2%.
Question 52:
(2C3-CQ06)
Leader Industries is planning to introduce a new product, DMA. It is expected that 10,000 units of
DMA will be sold. The full product cost per unit is $300. Invested capital for this product amounts
to $20 million. Leader's target rate of return on investment is 20%. The markup percentage for
this product, based on operating income as a percentage of full product cost, will be:
57.1%.
133.3%.
42.9%.
233.7%.
The price (p) of DMA is computed by using the following formula:
(p − costs)(number of units) = (return in investment %)(investment)

(p − $300)(10,000) = [(0.2)($20,000,000)]
(p − $300) = $4,000,000 / 10,000
(p − $300) = $400
p = $700
The markup percentage of full product cost = (price − cost) / (cost)

Markup percentage of full product cost = ($700 − $300) / ($300) = $400/$300 = 1.333, or 133.3%.
Question 53:
(2B1-LS03)
A primary benefit of portfolio diversification is to:

eliminate systematic risk.
provide a more favorable borrowing position.
reduce unsystematic risk.
reduce exposure to foreign exchange rates.
Most variability resulting from unsystematic risk is avoidable through diversification. Holding a
diversified portfolio reduces unsystematic risk (sometimes called diversifiable risk) because
different portions of the market tend to perform differently at various times.
Question 54:
(2B3-LS57)
The residual theory of dividends argues that dividends:
can be paid if there is income remaining after funding all attractive

investment opportunities.
are irrelevant.
Time Spent: 1:32:55can be foregone unless there is an excess demand for cash dividends. Score: 82% End
(recorded 9/20/17 11:05am)are100 Answered
necessary 0 Unanswered
to maintain the market price of the common stock.
The residual theory of dividends argues that dividends can be paid if there is income remaining
after funding all attractive investment opportunities.
Question 55:
(2B6-LS11)
Last year, import of a European product costing €255 cost $242.25. This year, the same import,
which has not changed price in euros, costs $300.00. Which of the following is true?
The cost of the euro in U.S. dollars has increased from $1.05 to $0.85.
The cost of the euro in U.S. dollars has decreased from $1.05 to $0.85.
The cost of the euro in U.S. dollars has decreased from $0.95 to $1.176.
The cost of the euro in U.S. dollars has increased from $0.95 to $1.176.
Notice that last year it cost fewer U.S. dollars than euros to buy the product. Therefore, the
exchange rate must be less than $1 U.S./euro. Calculating the exchange rate by dividing the U.S.
dollar amount by the euro amount, the exchange rate in the first year is $0.95 ($242.25/€255). In
the second year, it takes more U.S. dollars to purchase the goods, and the exchange rate is
$1.176 ($300 U.S./€255).
Question 56:
(2C3-LS36)
If the demand for a product is elastic, a price increase will result in:
no change in total revenue.

a decrease in total revenue.
an increase in total revenue.
an indeterminate change in revenue.
A perfectly elastic demand indicates that a small decrease in price will result in consumers
demanding as much of the product as they can get or a small increase in price will result in
demand falling to zero. Perfectly elastic demand happens only in a purely competitive market.
Question 57:
(2A4-LS08)
FAS 52 permits two different methods for converting the financial statements of foreign
subsidiaries into U.S. dollars. When the functional currency is U.S. dollars, the foreign currency
financial statements are re-measured into U.S. dollars using the:
Historical cost method.
Current rate method.
Functional currency method.
Temporal method.
When the functional currency is U.S. dollars, the foreign currency financial statements are re-
measured into U.S. dollars using the temporal method.
Question 58:
(2A2-CQ38)
Shown
Time below1:32:55
Spent: are selected data from Fortune Company's most recent financial statements.
Score: 82% End
What is Fortune's net working capital?
$45,000.
$35,000.
$50,000.
$80,000.
Net working capital is calculated as total current assets minus current liabilities. Therefore
(10,000 + 60,000 + 25,000 + 5,000) − (40,000 + 10,000 + 5,000) = $45,000.
Question 59:
(2B5-AT35)
Which of the following best describes a major risk for Leveraged Buyouts (LBOs)?
Highly leveraged, with large debt service payments.
Financed based on predictable cash flows.
Private, so quarterly earnings reports are not required.
Financed based on the fixed assets of the target company.
An LBO involves using the proceeds of debt issues to repurchase the company's stock from its
shareholders. An LBO increases leverage (the ratio of debt to equity) and interest payments
(debt service payments).
Question 60:
(2E4-LS08)
Which of the following most concisely describes the Monte Carlo Simulation technique?
Allows for the testing of a capital investment project using hypothetical
variables to approximate cash flow.
A separation of the timing of cash flows from their risk to evaluate a project's
success.
It uses repeated random sampling and computational algorithms to
calculate a range of most likely outcomes for a project.
A what-if technique for evaluating how NPV, IRR, and other indicators of the
profitability of a project change if some given variable varies from one case
to another.
Time Spent: 1:32:55
Simulations allow testing of a capital investment project before it is accepted. One simulation End
Score: 82%
(recorded 9/20/17
technique referred 100
is 11:05am) Answered
to as the Monte Carlo Simulation, which uses repeated0 Unanswered
random sampling
and computational algorithms to calculate a range of most likely outcomes for a project.
Question 61:
(2B4-LS41)
An analyst gathers the following data about a company:
Net annual sales = $40 million

Cost of goods sold = $25 million
Average inventory = $10 million
Average receivables = $5 million
The company's average collection period is closest to:

73 days.
54 days.
146 days.
45.6 days.
The accounts receivables turnover is net annual sales/average receivables or $40/$5 = 8x. The
average collection period is 365 days/average receivable turnover or 365/8 = 45.625 days.
Question 62:
(2B2-AT12)
The level of safety stock in inventory management depends on all of the following except the:
cost of running out of inventory.
cost to reorder stock.
level of uncertainty in lead time for stock shipments.
level of uncertainty of the sales forecast.
The purpose of a safety or buffer stock is to minimize the sum of the cost of stock-outs and the
costs of carrying the buffer. Its level is independent of ordering costs.
Question 63:
(2F2-LS01)
IMA's Statement of Management Accounting "Values and Ethics: From Inception to Practice"
identifies that ongoing training should include all of the following except:
How ethics affects specific jobs and processes.
Requiring each employee to sign the code of conduct.
What action is taken when an ethical issue is identified.
Penalties when noncompliance with the code of ethics is proven.
The SMA specifies that ongoing training should include the following expectations:
General employee behavior and personal conduct.

How ethics are built into work management methods.
How ethics affects specific jobs, processes, activities, and relationships.
How the organization monitors compliance with code.
What routes are open to employees who have compliance issues.
What action is taken when a complaint or issue is identified.
The actions
Time Spent: and penalties once noncompliance is proven.
1:32:55
Score: 82% End
Question 64:
(2B4-LS21)
Which of the following is an inventory control procedure that determines the optimum order size,
taking into consideration demand and costs?
Economic order quantity (EOQ).
Lead quantity.
Lockbox system.
Safety stock.
Determining EOQ answers the questions, "How much should be ordered?" and "When should
orders be placed?" EOQ represents optimum order size: the quantity of a regularly ordered item
to be purchased at a point in time resulting in minimum ordering and storage costs.
Question 65:
(2B2-LS09)
Which of the following statements accurately describes bond yields assuming an upward sloping
yield curve?
Higher-quality bonds typically have lower yields than lower-grade bonds of
the same maturity.
Short-term bonds have higher yields than do long-term bonds.
Secured bonds have higher yields than do unsecured bonds.
Fixed interest rate bonds earn more than do zero coupon bonds.
Higher-quality bonds are sold at the lowest rates of interest. Because of the risk associated with
lower-grade, non-investment quality (junk) bonds, they are typically higher-yield bonds. Junk
bonds have a greater chance of defaulting, but in some circumstances they may also be an
emerging entity or become a star and provide a highly profitable return.
Question 66:
(2A3-LS03)
Which of the following correctly defines the relationship between profit margin and asset
turnover?
ROA using the DuPont model is calculated by subtracting asset turnover from
profit margin.
ROA using the DuPont model is calculated by multiplying profit margin times
asset turnover.
There is no relationship between profit margin and asset turnover.
ROA using the DuPont model is calculated by dividing profit margin by asset
turnover.
ROA using the DuPont model is calculated as:
Question 67:
(2C1-CQ28)
Current
Time business
Spent: segment operations for Whitman, a mass retailer, are presented below.
1:32:55
Score: 82% End
Management is contemplating the discontinuance of the Restaurant segment since “it is losing
money.” If this segment is discontinued, $30,000 of its fixed costs will be eliminated. In addition,
Merchandise and Automotive sales will decrease 5% from their current levels. When considering
the decision, Whitman's controller advised that one of the financial aspects Whitman should
review is contribution margin. Which one of the following options reflects the current
contribution margin ratios for each of Whitman's business segments?
Merchandise: 60%; Automotive: 50%; Restaurant: 30%.

Contribution margin ratio = (sales − variable costs) / (sales)

CM Ratio for Merchandise = ($500,000 − $300,0000) / $500,000 = 40%
CM Ratio for Automotive = ($400,000 − $200,000) / $400,000 = 50%
CM Ratio for Restaurants = ($100,000 − $70,000) / $100,000 = 30%.
Question 68:
(2E1-LS06)
Which of the following items is not an example of a capital expenditure?

A ventilation system upgrade for EPA compliance.
Project bonuses paid to employees.
Purchase of a new assembly machine that will cut labor and maintenance
costs.
Purchase of a new computer server for the research and development group.
Long-term capital budget expenditures are often grouped in one of the following categories:
new machines and equipment intended for expansion, replacement of existing equipment,
some allocations for research and development for new products and/or the expansion of
existing products, mandatory projects required by law for safety, and other long-term
exploratory expenditures for buildings, land, patents, and so on.
Question 69:
(2E3-LS10)
An analyst at Rockville Enterprises estimates that a project has the following after-tax net cash
flows
Score: 82%
(recorded 9/20/17 11:05am)
If the company's cost of capital is 12%, the project's discounted payback period is closest to:
3 years.
4.48 years.
4 years.
5 years.
The calculation for the discounted payback period is

Discounted Net Cumulative Discounted
End of Year Net Cash Flow Cash Flow @ 12% Net Cash Flow
0 ($500,000) ($500,000.00) ($500,000.00)
1 150,000 133,928.57 (366,071.43)
2 200,000 159,438.78 (206,632.65)
3 150,000 106,767.04 (99,865.61)
4 125,000 79,439.76 (20,425.85)
5 75,000 42,557.01 22,131.16
6 50,000 25,331.56 47,462.72
Discounted payback period = 4 + $20,425.85/$42,557.01 = 4.48 years.
Question 70:
(2D1-LS17)
Organizations face many different types of risk. Risks that relate to natural disasters such as
storms, floods, hurricanes, blizzards, earthquakes, and volcanoes are commonly called:
Operational risks.
Financial risks.
Hazard risks.
Strategic risks.
Hazard risks relate to natural disasters such as storms, floods, hurricanes, blizzards,
earthquakes, and volcanoes. Financial risks are caused by debt/equity decisions related to
financing the business. They include liquidity (short-term bill paying) and solvency (long-term
bill paying). Operational risk relates to the relationship of fixed and variable costs in the
organization's cost structure as well as the following: internal process failures, system failures,
personnel, and legal and compliance risks.
Question 71:
(2B5-CQ35)
Company
Time Spent:ABC is considering merging with Company XYZ. After analyzing both companies, it is
1:32:55
Score: 82% End
determined that the incremental
(recorded 9/20/17 11:05am) 100 Answered after-tax free cash flow resulting from the merger is estimated
0 Unanswered
to be $3,500,000 and is expected to last for 20 years. Assuming a required rate of return of 12% for
the acquired company, using the discounted cash flow method, what is the maximum amount
Company ABC should offer to purchase Company XYZ for?
$26,236,000.
$26,757,500.
$33,761,000.
$26,141,500.
Using the discounted cash flow method of valuation, the present value of the merger benefits
would be the $3,500,000 after-tax free cash flow multiplied by the Present Value of Annuity
Factor of 7.469, which equals $26,141,500. The price offered by the buyer should be less than or
equal to $26,141,500.
Question 72:
(2F1-LS04)
At Berwick Enterprises, the controller is one of the key decision makers in recommending
consulting projects to local accounting professionals. The controller would often receive gifts
around the holidays. In considering whether or not to accept these gifts, the controller should
refer to which IMA Statement of Ethical Professional Practice?
Confidentiality.
Integrity.
Competence.
Credibility.
The IMA Statement of Ethical Professional Practice Integrity standard states that each member
has a responsibility to, among other things, refrain from engaging in any conduct that would
prejudice carrying out duties ethically and abstain from engaging in or supporting any activity
that might discredit the profession.
Question 73:
(2E4-LS03)
What is a primary caution when using a company's cost of capital as the discount rate to evaluate
a capital project?
Opportunity costs can be distorted.
The cost of capital may need to be risk-adjusted.
Evaluation typically rejects high-risk projects.
Low-risk projects are favored.
Many firms use their company's cost of capital as the yardstick to discount the cash flows on
new investments. But in situations where new projects are more or less risky than is normal for
the firm, use of the company rate can lead to erroneously accepting or rejecting a project.
Question 74:
(2B4-LS37)
Which of the following is an inventory control practice that minimizes investments in inventory by
completing all operations as they are needed?
Kanban.
Economic order quantity.
Time Spent: 1:32:55Just-in-time (JIT). End
Score: 82%
(recorded 9/20/17 11:05am)Safety stock analysis.
The underlying objective of a JIT system is to minimize all waste in manufacturing operations
by meeting production targets with the minimum amount of materials, equipment, operators,
and so on. This is accomplished by completing all operations just at the time they are needed.
Question 75:
(2B5-LS56)
A transaction in which a buyer of a company borrows a major portion of the purchase price using
the purchased assets as collateral for the borrowing is also known as a:
Conglomerate.
Merger.
Acquisition.
Leveraged buyout.
A leveraged buyout results from an acquisition that occurs when a buyer of a company borrows
a major portion of the purchase price using the purchased assets as collateral for the
borrowing.
Question 76:
(2F1-LS03)
The IMA Statement of Ethical Professional Practice Credibility standard states that each member
has a responsibility to:
Maintain an appropriate level of professional expertise by continually
developing knowledge and skills.
Provide decision support information and recommendations that are
accurate.
Disclose all relevant information that could reasonably be expected to
influence an intended user's understanding of the information.
Refrain from using confidential information for unethical or illegal
advantage.
This answer is incorrect. The IMA Statement of Ethical Professional Practice Credibility standard
states that each member has a responsibility to: communicate information fairly and
objectively; disclose all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, analyses, or recommendations; and disclose
delays or deficiencies in information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable law.
Question 77:
(2E1-AT16)
Maxgo Company is considering replacing its current computer system. The new system would
cost Maxgo $60,000 to have it installed and operational. It would have an expected useful life of
four years and an estimated salvage value of $12,000. The system would be depreciated on a
straight-line basis for financial statement reporting purposes and use an accelerated
depreciation method for income tax reporting purposes. Assume that the percentages of
depreciation for tax purposes are 25%, 40%, 20%, and 15% for the four-year life of the new
computer.
Maxgo's current computer system has been fully depreciated for both financial statement and
income tax reporting purposes. It could be used for four more years but not as effectively as the
new computer
Time system. The old system currently has an estimated salvage value of $8,000 and will
Spent: 1:32:55
have an estimated salvage value of $1,000 in four years. It is estimated that the
100 Answered new system will
0 Unanswered
Score: 82% End
(recorded 9/20/17 11:05am)
save $15,000 per year in operating costs. Also, because of features of the new software, working
capital could immediately be reduced by $3,000 if the new system is purchased. Maxgo expects to
have an effective income tax rate of 30% for the next four years.
Assuming that Maxgo Company purchases the new system, determine the estimated net cash
flow for the fourth (last) year of using the new system.
$20,900.
$21,600.
$18,600.
$17,900.
The net cash flow in the fourth year of operation is calculated by taking the after-tax net income
from the project, and adding the fourth year's depreciation on the system (adjusted for the
after-tax salvage value of the new system less the foregone salvage on the old system and the
increase in working capital requirements).
The after-tax net income = pretax income − income tax = $6,000 - $1,800 = $4,200
Where the pre-tax income = annual savings − depreciation = $15,000 − $9,000 = $6,000,
the depreciation = 0.15 × $60,000 MACRS = $9,000, and
the income tax = 0.30 × $6,000 = $1,800.
Net salvage value = New system − foregone salvage on the old system = $12,000 − $1,000 =
$11,000.
Tax on the net salvage is an outflow of $3,300 (0.30 × $11,000 (the new system's book value at
the end of year four is zero))
The increase in working capital (the reversal) is an outflow of $3,000.
Therefore, the net cash flow in year four = After-tax net income + Depreciation + Net salvage −
Tax on the salvage - Increase in working capital
= $4,200 + $9,000 + $11,000 − $3,300 − $3,000 = $17,900.
Note that depreciation is added back since it is not a cash flow and the change in NWC is used
as it is assumed to occur at the end of the last year for the system's budget.
Question 78:
(2B3-LS58)
When determining the amount of dividends to be declared, the most important factor to consider
is the:
future planned uses of cash.

impact of inflation on replacement costs.
future planned uses of retained earnings.
expectations of the shareholders.
When determining the amount of dividends to be declared, the most important factor to
consider is the future planned uses of cash.
Question
Time 79:1:32:55
Spent:
(2F2-LS04)
Score: 82% End
(recorded 9/20/17 11:05am)
What are three tools available to measure and improve ethical compliance?
I. Human performance feedback loop

II. Survey tools
III. Whistleblowing framework
IV. Employee training
II and IV only.
I, II and IV only.
I and III only.
I, II, and III only.
Employee training is a key part of maintaining an ethical organizational culture, both at time of
hire and as an ongoing process. The other three answers are the primary tools available to
measure ethical compliance in an organization that may lead to revisions in the training
program(s).
Question 80:
(2B3-LS59)
Underhall Inc.'s common stock is currently selling for $108 per share. Underhall is planning a new
stock issue in the near future and would like to stimulate interest in the company. The Board,
however, does not want to distribute capital at this time. Therefore, Underhall is considering
whether to offer a 2-for-1 common stock split or a 100% stock dividend on its common stock. The
best reason for opting for the stock split is that:
the impact on earnings per share will not be as great.

it will not impair the company's ability to pay dividends in the future.
it will not decrease shareholders' equity.
the par value per share will remain unchanged.
The best reason for opting for the stock split is that it will not impair the company's ability to
pay dividends in the future.
Question 81:
(2E3-AT04)
The Keego Company is planning a $200,000 equipment investment which has an estimated five-
year life with no estimated salvage value. The company has projected the following annual cash
flows for the investment.
Assuming that the estimated cash inflows occur evenly during each year, the payback period for
the investment is:
1.67 years.
Time Spent: 1:32:551.75 years. Score: 82% End
100 Answered
(recorded 9/20/17 11:05am)1.96 0 Unanswered
years.
2.5 years.
A project's payback is the length of time it takes for the cash flows generated by the initial
investment to equal the initial investment. Assuming the cash flows occur uniformly throughout
the year, the project's payback is 2.5 years.
The project produces cash flows of $120,000 + $60,000 = $180,000 after two years, and $180,000
+ $40,000 = $220,000 after three years.
The initial investment was $200,000. The payback therefore, is [2 years + (220,000 −
200,000)/40,000]
Payback = 2 + (20,000/40,000)
Payback = 2 + 0.50 = 2.5 years.
Question 82:
(2B6-AT21)
Suppose a company has three foreign subsidiaries: Subsidiary A is located in a country with a
40% corporate tax rate, Subsidiary B is located in a country with a 30% corporate tax rate, and
Subsidiary C is located in a country with a 35% corporate tax rate. If allowed by relevant laws,
how would the company improve its combined after-tax earnings using transfer pricing?
Reduce the price that Subsidiary A charges to Subsidiary B.
Changes in transfer pricing policy have no impact on combined after-tax
earnings.
Increase the price that Subsidiary A charges to Subsidiary B.
Reduce the price that Subsidiary B charges to Subsidiary C.
Since the tax rate in the country Subsidiary A operates in is 40% and is higher than the tax rate
in the country Subsidiary B operates in (30%), the transfer price should be set so as to be taxed
in the country that Subsidiary B operates in. Therefore, the transfer price should be set low
(reduced). The price is a taxable revenue in the country Subsidiary A operates in; it is a
deductible expense in the country Subsidiary B operates in.
Question 83:
(2B6-AT12)
Fluctuations in exchange rates under a freely floating exchange rate system are caused by:
governments.
market forces.
the International Monetary Fund.
the World Bank.
Foreign exchange rates are, in the short run, a function of interest rate differentials between
countries. An increase in the interest rate by a particular country will increase the relative value
of that country's currency. Intermediate range exchange rates are a function of imports and
exports. In the long run, exchange rates move toward purchasing power parity.
Question 84:
(2E1-LS19)
In capital
Time Spent:budgeting
1:32:55analysis, which one of the following alternatives best reflects the items to be
incorporated, in the initial net cash investment (or initiation cash flow)?
Score: 82% End
(recorded 9/20/17 11:05am)
Yes No No No
No Yes No No
No Yes Yes Yes
Yes Yes Yes Yes
In capital budgeting analysis, many items should incorporated in the initial net cash
investment; some items that can be included are capitalized expenditures, changes in net
working capital, proceeds from the sale of assets, and changes in liabilities. The initial net cash
investment is the net cash flow at the inception of the project (time 0).
Question 85:
(2E1-LS18)
In estimating "after-tax incremental cash flows," for capital project evaluations, which one of the
following options reflects the items that should be included in the analyses?
Sunk Costs: No; Change in Net Working Capital: Yes; Estimated Impacts of
Inflation: Yes.
Sunk Costs: No; Change in Net Working Capital: No; Estimated Impacts of
Inflation: Yes
Sunk Costs: No; Change in Net Working Capital: Yes; Estimated Impacts of
Inflation: No.
Sunk Costs: Yes; Change in Net Working Capital: No; Estimated Impacts of
Inflation: No.
In estimating "after-tax incremental cash flows," under discounted cash flow analyses for
capital project evaluations, project related changes in net working capital and estimated
impacts of inflation should be included in the analysis. Sunk costs are past costs that do not
change as a result of a future decision and should not be included in the analysis.
Question 86:
(2F1-LS08)
Recently Fan Club Inc. submitted a budget for the coming year to management. Included in the
budget were the plans for a new product, a rechargeable fan. The new fan will not only last longer
than the competitor's product but is also more quiet. While not yet approved, the budget called
for aggressive advertising to support its sales targets, as the business community was not yet
aware that Fan Club was close to production of a new fan. A member of the management
accounting staff "shared" the budget with a distributor. In accordance with IMA's "Statement of
Ethical Professional Practice," which one of the following would best represent an ethical conflict
in this situation?
The price has not been established, so expectations must be managed.
Time Spent: 1:32:55The employee should refrain from disclosing confidential information. Score: 82% End
100 Answered
(recorded 9/20/17 11:05am)The 0 Unanswered
staff member exposed the company to a potential lawsuit.
The budget has not been approved and therefore is not for publication.
According to the IMA's Statement of Ethical Professional Practice, the employee should refrain
from disclosing confidential information. Providing confidential information will adversely
affect the organization in many ways.
Question 87:
(2C2-LS09)
ABC makes and sells ski wax at $20 per set. Using the table below, if wages are currently $20, how
many workers can the company profitably employ?
6.
8.
9.
7.
The profit maximization equation for resource costs is MRC (marginal revenue cost) = MRP
(marginal revenue product). You can use the table below to calculate the point at which MRP
equals labor costs.
Question 88:
(2A2-CQ15)
The following
Time financial information is given for Anjuli Corporation (in millions of dollars).
Spent: 1:32:55
Score: 82% End
(recorded 9/20/17 11:05am)
Between the prior year and the current year, did the days sales in inventory and days sales in
receivables for Anjuli increase or decrease? Assume a 365-day year.
Days Sales in Inventory = Decreased ; Days Sales in Receivables = Increased

Days Sales in Inventory = Decreased ; Days Sales in Receivables = Decreased
Days Sales in Inventory = Increased ; Days Sales in Receivables = Decreased
Days Sales in Inventory = Increased ; Days Sales in Receivables = Increased
The days sales in inventory is calculated as:
Days sales in inventory = (# days in a year) / (inventory turnover)
Inventory turnover = (cost of goods sold (COGS) / (average inventory)
The COGS increased by 16.7%, which is calculated by taking the year-over-year change in cost
of goods sold, or (7 − 6) / 6 = 16.7%.
Inventory increased by 25%, which is also calculated by taking the year-over-year change in
inventory, or (5 − 4) / 4 = 25%.
Because both the COGS and the inventory increased, the inventory turnover would decrease,
resulting in an increase in the days sales in inventory.
Average number of days in accounts receivable = 365 / (the accounts receivable turnover per
year)
Accounts receivable turnover per year = (Net credit sales for year) / (average accounts
receivable balance for the year)
Since the sales increased by 10% ((11 − 10) / 10 = 10%), and the accounts receivable increased
by 33% ((4 − 3) / 3 = 33%), the accounts receivable turnover would decrease, increasing the days
sales in accounts receivable.
Question 89:
(2E4-LS07)
Which type of real option would a firm most likely choose if there is a high probability of
capturing additional future cash flows beyond the current estimates contained in the cash flow
projections?
Postpone.
Abandon.
Expand.
Adapt.
Time Spent:option
An expand 1:32:55 is especially valuable when uncertainty is high but a firm's product or service Score: 82% End
100 Answered
(recorded
market9/20/17 11:05am)rapidly.
is growing A common adage is that today's investments can0 generate
Unanswered
tomorrow's opportunities.
Question 90:
(2E3-CQ01)
Hobart Corporation evaluates capital projects using a variety of performance screens; including a
hurdle rate of 16% and a payback period of 3 years or less. Management is completing review of a
project on the basis of the following projections..
The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects
the appropriate conclusions for the indicated evaluative measures?
IRR − Reject; Payback − Reject.

IRR − Accept; Payback − Reject.
IRR − Accept; Payback − Accept.
IRR − Reject; Payback − Accept.
Since the project's IRR of 20% exceeds the hurdle rate of 16%, it should be accepted on that
basis.
The project's payback = $200,000 / $74,000 = 2.7 years, which is less than the minimum 3 years
required. Therefore, the project should be accepted based upon payback.
Question 91:
(2F2-AT02)
Which of the following actions will most likely result in a successful foreign business venture in
Islamic countries?
Adhere to Islamic beliefs.
Have property in an Islamic nation.
Employ Islamic people.
Behave in a manner that is consistent with Islamic ethics.
Successful operation by a company operating in a foreign country is a function of how well the
company adapts to the host country's culture. Successful adaptation includes behaving in a
manner that is consistent with host country's ethics.
Question 92:
(2A4-CQ23)
Williams makes $35,000 a year as an accounting clerk. He decides to quit his job to enter an MBA
program full-time. Assume Williams doesn't work in the summer or hold any part-time jobs. His
tuition, books, living expenses, and fees total $25,000 a year. Given this information, the annual
total economic cost of Williams' MBA studies is:

Time Spent: 1:32:55$60,000. Score: 82% End
100 Answered
(recorded 9/20/17 11:05am)$10,000. 0 Unanswered
$25,000.
$35,000.
The economic cost of a decision depends on both the cost of the alternative chosen and the
benefit that the best alternative would have provided if chosen. Economic cost differs from
accounting cost because it includes opportunity cost. The total economic cost in this scenario is
the $35,000 salary + $25,000 tuition, books, living expenses, and fees = $60,000.
Question 93:
(2C1-AT22)
Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical
flows. The following cost information relates to the product.
The company will also be absorbing $120,000 of additional fixed costs associated with this new
product. A corporate fixed charge of $20,000 currently absorbed by other products will be
allocated to this new product.
If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred)
for surge protectors is:
10,000 units.
23,300 units.
8,500 units.
20,000 units.
The breakeven point in units is calculated as: Avoidable Fixed Costs divided by Unit
Contribution Margin.
The avoidable fixed costs are $120,000.

The unit contribution margin (price less unit variable costs) is $6 ($14 − $3.25 − $4.00 − $0.75).
The breakeven, therefore, is 20,000 units ($120,000 / $6).
Question 94:
(2C3-LS40)
Which one of the following situations best lends itself to a cost-based pricing approach?
An industrial equipment fabricator negotiating pricing for one of its standard

models with a major steel manufacturer.
A computer component manufacturer debating pricing terms with a
customer in a new channel of distribution.
A paper manufacturer negotiating the price for supplying copy paper to a
new mass merchandiser of office products.
A computer component manufacturer debating pricing with a new customer
Time Spent: 1:32:55for a made to order, state of the art application. End
Score: 82%
(recorded 9/20/17 11:05am)
Cost-based pricing is appropriate for relatively unique products. The other choices deal with
relatively standard products.
Question 95:
(2D1-LS24)
When a company purchases property and casualty insurance, they are attempting to mitigate risk
by practicing:
Risk avoidance.
Risk transfer.
Operational risk.
Exploiting risks.
Purchasing insurance does not decrease the likelihood of a loss occurring, but in the event that
it does, a portion if not all of the loss is borne by (transferred to) the insurance company that
issued the policy.
Question 96:
(2A2-AT47)
Gartshore Inc. is a mail-order book company. The company recently changed its credit policy in
an attempt to increase sales. Gartshore's variable cost ratio is 70% and its required rate of return
is 12%. The company projects that annual sales will increase from the current level of $360,000 to
$432,000, but the average collection period on receivables will go from 30 to 40 days. Ignoring any
tax implications, what is the cost of carrying the additional investment in accounts receivable,
using a 365-day year?
$2,160.
$1,492.
$1,761.
$2,601.
The cost of carrying the additional investment in accounts receivable is 12% of 70% of the
increase in the average accounts receivable balance. The increase in accounts receivable is
$17,761.
The new average accounts receivable balance is $47,342, which is calculated as:
$432,000 in sales divided by the accounts receivable turnover of 9.125 (365 days divided by the
collection period of 40 days).
The old average accounts receivable balance is $29,581, which is calculated as:
$360,000 in sales divided by the accounts receivable turnover of 12.17 (365 days divided by the
collection period of 30 days).
The difference between the old and new accounts receivable balances is an increase of $17,761
(old = $29,581, new = $47,342), and this incremental amount is used to calculate the increased
carrying cost.
Increased carrying cost = (0.12)(0.7)($17,761) = $1,492.
Question 97:
(2C3-CQ05)
Synergy
Time Inc. produces
Spent: 1:32:55 a component that is popular in many refrigeration systems. Data on three
Score: 82% End
(recorded 9/20/17 11:05am)models
of the five different of this component are as follows.
Synergy applies variable overhead on the basis of machine hours at the rate of $2.50 per hour.
Models A and B are manufactured in the Freezer Department, which has a capacity of 28,000
machine processing hours. Which one of the following options should be recommended to
Synergy's management?
The Freezer Department's manufacturing plan should include 5,000 units of

Model A and 4,500 units of Model B.
Manufacture all three products in the quantities required.
The Freezer Department's manufacturing plan should include 2,000 units of
Model A and 6,000 units of Model B.
Purchase all three products in the quantities required.
Synergy would want to maximize the contribution per machine hour, multiplied by the 28,000
machine hours available.
The contribution per machine hour for each product can be calculated as follows:
Contribution per machine hour = (outside price − product's unit variable costs) / (number of
machine hours required to make it)
# machine hours required to make any model = variable overhead for that model / ($2.50/hr.)
# machine hours required to make Model A = ($5)/($2.50/hr.) = 2 hours
# machine hours required to make Model B = ($10)/ ($2.50/hr.) =4 hours.
# machine hours required to make Model C = ($15)/($2.50/hr.) =6 hours
Contribution per machine hour, Model A = ($21 − $10 variable direct costs − $5 variable
overhead) / (2 hours)
Contribution per machine hour, Model A = $6 / 2 hours = $3.00 per machine hour
Contribution per machine hour, Model B = ($42 − $24 variable direct costs − $10 variable
Contribution per machine hour, Model B = $8 / 4 hours = $2.00 per machine hour
Contribution per machine hour, Model C = ($39 − $20 variable direct costs − $15 variable
Contribution per machine hour, Model C = $4 / 6 hours = $0.67 per machine hour
Based on this information about contribution per machine hour, Synergy should:
First produce
Time Spent: 1:32:55 5,000 units of Model A (the highest contribution margin per machine hour)
Score: 82% End
(recorded 9/20/175,000(2)
using 11:05am) =100
10,000 machine hours.
Answered 0 Unanswered
Then produce 4,500 units of Model B (the next highest contribution margin per machine
hour) using 4,500(4) = 18,000 machine hours.
The two models would use the entire capacity of 28,000 machine hours (10,000 + 18,000),
so no additional products could be produced.
Question 98:
(2A1-AT03)
When preparing common-size statements, items on the Balance Sheet are generally stated as a
percentage of __________ and items on the Income Statement are generally stated as a
percentage of __________.
total assets; net income.
total shareholders' equity; net income.
total shareholders' equity; net sales.
total assets; net sales.
Common-size balance sheets express all assets, liabilities, and equities as a percent of the
balance sheet footing (total assets). Common-size income statements express all sales
adjustments, expenses, gains, losses, other revenues, and taxes as a percent of sales.
Question 99:
(2B6-CQ05)
The cross-rates for foreign exchange are shown below.
These spot rates present an opportunity for:
triangular arbitrage.
exchange rate hedging.
purchasing power parity.
interest rate parity.
Triangular or triangle arbitrage involves taking advantage of the imbalance among three
foreign exchange markets. A combination of deals is made that exploits the imbalance,
resulting in a profit.
Question 100:
(2C1-LS13)
Given fixed costs of $25,000, variable costs per unit of $1,500, and a unit contribution margin of
$300, how many units must be sold to reach a target operating income of $200,000? (Use the
contribution margin method.)
167 units.
750 units.
650 units.
583 units.
100 Answered margin method to earn a target profit level0 is:
Unanswered
Score: 82%
(recorded 9/20/17 11:05am)
The formula for the contribution
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Time Spent: 1:32:55 End

100 Answered 0 Unanswered

How many cakes will be required to reach the breakeven point?

Round cakes: (10,000 / 25,000) × 20,000 = 8,000 round cakes

Julie is the senior management accountant for Hazelton Manufacturing, a multinational

The act requires a company to provide a whistleblowing hotline to report

*Source: Retired ICMA CMA Exam Questions.

Contribution margin/Contribution margin ratio.

Which of the following is correct?

Change in inflation = (inflation, year 4 − inflation, year 1) / inflation, year 1

Change in sales = (sales, year 4 − sales, year 1) / sales, year 1)

Total variable costs = $500 ($5 per unit × 100 units)

Operating profit margin is computed by taking Operating Income/Sales. Operating income is

Which of the following statements is true regarding common-size statements?

The common-size trend in sales is increasing and is resulting in an increasing

Gross profit percentage is calculated as:

Gross profit percentage = (gross profit) / (sales)

The decrease in gross profit percentage is caused by an increasing common-size (percent of

The cash flows for each year are calculated as follows:

Cash flow, Year 1 = ($50,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 2 = ($50,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 3 = ($400,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 4 = ($400,000 − $100,000)(1 − 0.4) + $100,000

Cash flow, Year 5 = ($400,000 − $100,000)(1 − 0.4) + $100,000

PV of Year 0 cash flow = −$500,000

20.5% and 26.5%.

For project A, the IRR, by interpolation = 18% + [(77)/(77 +26)](2%)

For project B, the IRR, by interpolation = 24% + [(30)/(30 + 11)](2%)

Ke = required rate of return

Colvern Corporation is considering the acquisition of a new computer-aided machine tool to

The annual cash flow from the investment is calculated as:

Change in depreciation = new depreciation expense − old depreciation expense

Annual cash flow = ($28,400 − $14,400)(1 − 0.4) + ($14,400)

Product A - $37.00; Product B - $24.00.

Contribution per machine hour is calculated as:

Unit contribution margin (CMU) = selling price − unit variable costs

Unit variable costs, Product A = ($53 + $10) = $63

Unit variable costs, Product B = ($45 + $11) = $56

The initial cash outflow at time 0 is calculated as follows:

Initial cash outflow = ($90,000) + ($4,000) + ($6,000) − ($25,000) + ($4,000).

The point where M = 2 and S = 3 would:

be the optimal solution point.

The constraints in this problem are:

The problem can be solved by using algebra, aided by graphing.

I. Defining organizational values.

I, II, and III, only.

The net present value (NPV) of this investment is:

NPV = − $400,000 + ($160,000)(0.87) + ($140,000)(0.76) + ($100,000)(0.66) + ($100,000)(0.57) +

Number of shares = # shares issued − # shares of treasury stock

Dividend: ($0.60 per share)(20,000 shares) = $12,000.

*Source: Retired ICMA CMA Exam Questions.

Which one of the following is not a shortcoming of the payback method?

*Source: Retired ICMA CMA Exam Questions.

It offers no indication of a project's liquidity. The payback method in capital budgeting

*Source: Retired ICMA CMA Exam Questions.

Direct materials required in the manufacture of a table.

For Williams, Ke= $7/($100-$3-$5) = $7/$92 = .076, or 7.6%.

Dedham's quick (acid-test) ratio at year end is:

The quick ratio, or acid test ratio, is defined as follows:

Current assets = (cash + receivables + pre-paid expenses + inventory + available-for-sale