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NEW QUESTION # 59
Calculate AMI's degree of operating leverage. Show your calculations.
Essay
Apex Manufacturing lnc. (AMI) is a Canada-based company that manufactures a manufactures and unique part for aircrafts. It has few competitors in the market. The company is exposed to exchange rate risk because about 90% of its products are exported to the U.S, and most of its sales contracts are in U.S. dollars. AMI has the capacity to manufacture 1,500 units of the part per year. For the year just ended. AMI manufactured and sold 1,000 units. The operating results are shown below.
Recently, A new customer made a one-area order of 500 units of the part at $1.200 per unit. The CTO asked the controller to analyze this offer. AMI is considering adjusting its sales price next year in a recent meeting, the CFO suggested to use the market-based approach for pricing decisions, bat the controller insisted that the cost-based approach is more favorable to the company.
Answer:
Explanation:
See the explanation for the answer.
Explanation
$1m/$0.5,
2 times
contribution/operating income
They can simply revalue their assets and hence ask for a higher price for their company or they re structure their financing structure by either issuing fleets or reducing me equity by paying a special one off dividend.
NEW QUESTION # 60
It is possible to eliminate risk in a two-stock portfolio of common stocks if
- A. there is perfect negative correlation between the stocks
- B. there is no correlation between the stocks.
- C. the two stocks have equal positive beta coefficients
- D. there perfect positive correlation between the stocks
Answer: A
NEW QUESTION # 61
Delman inc considering upgrading its manufacturing facility, and it is expected that the new equipment will cost $180,000. The project's is considering similar to the risk of the firm's other investments. the after-tax cash inflows attribute to this project are expected to increase by $50,000 every year over the next five years. The firm's marginal tax rate is 30%, its debt-to-equal ratio (using market values) is 60%, and its pre-tax cost of debt and equity are 8% and 12% respectively. the weighted average cost of capital appropriate for evaluating this project is closest to
- A. 8.0%
- B. 8.2%
- C. 9.6%
- D. 10.5%
Answer: C
NEW QUESTION # 62
Southwest Supplies Inc. (SSI) is considering the following two projects with cash-flows discounted at SSI's weighted average cost of capital.
SSI can only afford to invest in one of the projects. Which statement would most likely explain why SSI would choose Project B over project A?
- A. Project B cash-flows are to be received sooner
- B. Project B generates significantly more non-cash expenses
- C. Project B cash-flows are relatively more certain
- D. Project B results in a higher cumulative accounting income
Answer: A
NEW QUESTION # 63
Sunnyvale Gas Company had a $50 million issue of 30-year mortgage bonds issued at par 10 years ago The coupon rate on the bonds is 15% and Interest is payable semi-annually on March 1 and September 1. The bonds are currently trading at SI 300. The can provision of the issue states that the bonds are callable after the S-year deferral period at 108 plus accrued interest. If Sunnyvale calls the bonds effective June 1 what is the cash payment, ignoring taxes, to the bondholders?
- A. $57 750 000
- B. $51875 000
- C. $66,875,000
- D. $55 875 000
Answer: A
NEW QUESTION # 64
Explain why facilitating payments can create possible ethical and legal issues tor a company Essay Online Learning Inc. lOLI) is a privately-held company based in the IUC that specializes in providing online courses in English as a Second Language (ESL). OLI is trying to set up a new sales office in a foreign country.
It needs a business license to operate in that country. The license normally lakes six months to obtain. An official of that country said that he could expedite the process for a fee of €300.
OLI estimates the new sales office can bring €300,000 incremental profit annually OLI has just launched a new online 40-houi course to help adult ESL learners master basic business English. The price of the new course is €500 per student, the variable cost is €300 per student, and the total fixed cost of the new course is
€300.000 per year OLI spent €200.000 to develop the new course before launching it. There are many online course providers in the marketplace, and each has its own feature However, OLI's highly qualified staff and good reputation have enabled it to charge a premium price compared to its major competitors. Recent market research indicates that if OLI raises the price of its new business English course by 10V the student enrollment would decrease by 5V A regional airlines company in Asia has approached OLI and offered to enroll 1.000 of its employees in the new course if OLI would agree to a special price of €350 per employee If OLI accepts this offer, an additional €10,000 onetime cost would be required to temporally expand its capacity to accommodate the new students.
Answer:
Explanation:
See the explanation for the answer.
Explanation
it can create ethical and legal issues as in some countries it might be considered as a would and would be illegal and secondly in gives undue favour to the company as compared to the company who has actually waited for 6 months to get the license.
NEW QUESTION # 65
An accountant for a company has not used readily available professional development opportunities to stay aware of changes in tax laws and applied previous tax rules to the most recent tax return, resulting in an overpayment of income tax Using IMA's Statement of Ethical Professional Practice, how would the accountant's behavior best be described?
- A. The accountant has complied with the competence standard if the lack of professional development is disclosed in any reports or analyses the accountant produces
- B. The accountant has not complied with the competence standard
- C. The accountant has complied with the competence standard if the lack of professional development is disclosed to supervisors
- D. The accountant has not complied with the credibility standard but has complied with the competence standard
Answer: B
NEW QUESTION # 66
Company A is concerned with its debt status and interested in analyzing how each one of the following activities might affect its to equity ratio. Assuming each activity is independent, which one of following activities is
- A. Creating a separate entity to purchase a needed machine and leasing it from this entity.
- B. Purchase back some of its common stock during the year.
- C. Changing its inventory method from LIFO to weighted average.
- D. Acquiring a subsidiary and consolidating for year-end financial statements.
Answer: D
NEW QUESTION # 67
A corporation has $80 million in current assets comprised of $30 million in inventory and $50 million in cash and marketable securities it has current liabilities of $50 million. If the corporation purchases an additional $10 million in inventory with trade credit this would
- A. not change its current ratio and not change its quick ratio
- B. decrease its current ratio and decrease its quick ratio
- C. increase its current ratio and increase its quick ratio
- D. not change its current ratio and decrease its quick ratio
Answer: B
NEW QUESTION # 68
A company produces 10,000 units of Product A monthly at the costs shown below.
The company estimates that 30% of the fixed overhead costs allocated to Product A are avoidable if the company chooses to outsource the production If the company purchases Product A from an outside supplier for $18 per unit what would be the net effect on its operating income?
- A. ($5,000)
- B. $5,00C
- C. ($17,000)
- D. $23,000
Answer: A
NEW QUESTION # 69
The Transformer Division of Keller Electrical Supply IS developing its Budget for next year Preliminary estimates for the next year are as follows.
* Sales of 10.000 units
* Variable cost of $350 per unit
* Fixed costs of $800,000
. Net assets utilized on the Transformer Division are $7 million
* Target rate of return on investment required by Keller is 15%
If the Transformer Division utilizes cost-based pricing and uses a markup based on its target rate of return, what price per unit (rounded to the nearest dollar) should it use for the budget?
- A. $430
- B. $535
- C. $506
- D. $495
Answer: B
NEW QUESTION # 70
With respect to the COSO Enterprise Risk Management Integrated Framework (2017), which one of the following statements is true regarding Governance & Culture and Performance?
- A. They are both components of the Integrated Framework
- B. They are both principles of the Integrated Framework
- C. Governance & Culture is a principle and Performance is a component of the Integrated Framework
- D. Performance is a principle and Governance & Culture is a component of the Integrated Framework
Answer: A
NEW QUESTION # 71
In March 20X2, an investor purchased a government bond with a face value of $100 that matures in 30 years.
The issue price was $94 and the bond offered a yield to maturity of 5.6% One year later, the investor sold the bond at a price of S105 after receiving an interest payment of $6. The total return is
- A. 6.0%
- B. 11.7%
- C. 18.1%
- D. 5.6%
Answer: C
NEW QUESTION # 72
Ryan Fitzgerald the vice president of finance for Southwest Development Company is evaluating a proposed expansion plan currently. Southwest Development has $660 million of total assets and the company's equity ratio Is 38% Southwest Development has never issued preferred shares. The company's earnings before interest and taxes (EBIT) are $83 6 million. The interest rate on their debt is 7 2% and the company's tax rate is 30%. The company is planning to expand by investing $110 million. In assets. As result both sales and EBIT will increase by 20%. The expansion will be financed with 40% debt and 60% common equity If Southwest Development proceeds with the expansion what will happen to the company's return on equally (ROE)?
- A. ROB increases from 14.07% to 14.12%.
- B. ROE decreases from 28.25% to 26.40%.
- C. ROE decreases from 19.78% to 18.48%.
- D. ROE increases from 19.78% to 20.17%.
Answer: C
NEW QUESTION # 73
Given the financial information shown below, what amounts would be shown for sales revenue and for gross prom, respectively in a common size income statement?
- A. 100% and 55%
- B. 100% and 20%
- C. 100% and 45%
- D. 222% and 225$
Answer: C
NEW QUESTION # 74
The best discount rate to the use for evaluate of investment opportunities is the
- A. average market interest rate
- B. risk-free interest rate
- C. opportunity cost of capital
- D. cost of the company's debt
Answer: C
NEW QUESTION # 75
On January 1, 2008 the exchange rate between the U S dollar (S) and Indian Rupee (Rs) was $t = Rs 39. 2676.
On January 1, 2009 the rate was Rs 1 = $0,0205. Based only on the relative currency appreciation or depreciation, which country's exports would likely have increased?
- A. India
- B. Both India and U.S
- C. Neither India or U.S
- D. U.S
Answer: D
NEW QUESTION # 76
Using the dividend discount model, an analyst determines mat Beverly Company's equity is worth $80 per share. Beverly Company's required rate of return is 15% and the current risk-free rate is 5% assuming a 0% long-term growth rate, what is Beverly's estimated future annual dividend?
- A. $8.00
- B. $1.20
- C. $16.00
- D. $12.00
Answer: A
NEW QUESTION # 77
Slam-Dunk Shoes has 5,000 pairs or damaged shoes in inventory. The cost of these shoes was $51,000. in their present condition, the shoes may be sold at clearance prices for $29,000 Slam-Dunk can have the shoes repaired at a cost of $77,000 after which they can be sold for $100,000. What is the opportunity cost of selling the shoes in their present damaged condition?
- A. $71.000
- B. $100, 000
- C. $77, 000
- D. $23.000
Answer: D
NEW QUESTION # 78
Your organization is considering implementing an Enterprise Risk Management process. You expect to obtain many benefits from this process. Which of the following is not an expected Benefit?
- A. Reducing operational surprises and losses
- B. Aligning risk appetite and strategy
- C. Eliminating risk response decisions
- D. Seizing opportunities.
Answer: C
NEW QUESTION # 79
IF a company does not have a code of conduct, the company most likely
- A. is missing important guidance on ethical decision making
- B. will lack an expressed statement of values regarding ethical behavior
- C. can use its statement of values instead to implement ethics in daily decision making
- D. must find another way to express its ethical principles
Answer: A
NEW QUESTION # 80
Risk maps are used in companies' enterprise risk management system because risk maps
- A. provide a quantitative tool that measures the probability of occurrence and the potential impact to calculate a potential loses
- B. rank risks Based on the potential loss that could occur it a risk were to materialize
- C. are a generic set of risks for the company's industry that can then be used as a foundation for further risk-identification techniques to specify the risks relevant for the company.
- D. compares the impact of a risk and the likelihood of occurrence to provide a qualitative assessment of the risk
Answer: D
NEW QUESTION # 81
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