Try Free CMA Part 2: Strategic Financial Management Exam Questions

1. Safety Strollers was recently sued by several people who alleged harmful and unsafe strollers. The management team was largely unconcerned about these lawsuits due to the apparent negligence of the plaintiffs However, a consumer grassroots effort Drought these dangers into the public eye and the management team now fears for their brand s reputation and the sales o' their products. The facts are staring to get distorted and some stores are electing to no longer carry this brand. This situation could best be considered a

2. Which one of the following moral philosophies states that the morality of an action is inherent and not based on the consequences of the action?

3. Sigma industries is considering purchasing Lambda Products in a cash transaction Sigma financial analysts Dave conducted an extensive amount of negotiation and due diligence and nave summarized the following financial information for management.

• Assets having a 10-year remaining life can be acquired for $22 million

• Assets are to De depreciated over their remaining life on a straight-line basis for Doth book and tax purposes

• Current liabilities of Lambda amounting to S3 million must be assumed by Sigma

• Lambda operations are expected to produce annual pre-tax cash Don of S7 million for the remaining 10 years of operation

• A16% return on investment is required by Sigma for acquisitions of this type

• Sigma's marginal Income tax rate is 35%

What is the net present value to Sigma of the Lambda acquisition rounded to the nearest thousand?

4. A company has incurred $2,500 to produce its four products. These products can either be sold as is or processed further.

The selling prices and additional costs necessary to finish these products ace shown below

5. A group of nations is considering me formation of a cartel associated with the manufacture and distribution of a product that they each export .

Which one of the following outcomes would not be consistent with me formation of a carter?

6. If a CMA is asked to conduct a financial assessment of a company owned by a close relative, what would be the proper response under the credibility standard of the IMA Statement of Ethical Professional Practice?

7. 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?

8. The best discount rate to the use for evaluate of investment opportunities is the

9. 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?

10. Management is responsible for identifying potential events mat could represent opportunities or threats .

Which one of the following is not a viable event identification technique?

11. Radal inc. currently has three product lines: stationery computer supplies, and printer cartridges Based on the following information, the company is considering whether to drop the printer cartridge line.

12. Which one of the following would best ensure the effectiveness of an organization s code of conduct?

13. FreeRide inc is considering replacing its existing shuttle bus win a new one.

The new bus can offer considerable savings in operating costs Information about the existing bus and the new bus is shown below.

14. Which one of the following statements best describes an offering after an initial public offering where a benchmark stock price will already exist?

15. A foreign subsidiary of a U S company has an intercompany loan from the parent company .

Which one of the following statements about the subsidiary's functional currency is true?

16. Abex Employment Agency has requested an increase in the firm's line of credit, and the bank is reviewing Abex's sales and collections history Although the firm's sales have increased the bank is concerned about the credit quality of the firm's customers Based on the following information calculate the average collection period for the firm Use a 365-day year in your calculations.

17. Which one or the following costs Is a variable product cost?

18. A management accountant overheard the company's procurement manager discussing a kickback payment for one of the company s recent projects. The procurement manager promised to pay a share to the other person II the arrangement was kept confidential According to the IMA Statement of Ethical Professional Practice which one of the following is the most appropriate action for the management accountant to take?

19. CORRECT TEXT

Identify the market structure in which OLI operates and explain how OLi's pricing is affected by this mantel structure

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.

20. Genco Healthcare has asked ns controller to summarize the company’s financial performance for the past two years. The accountant provided the following two years financial ratios for reference.

21. A company plans to purchase equipment for $110 000. The equipment is expected to generate an annual cash flow o( $44 500 (of the next three years. The company has a predetermined hurdle rate of 9%.

Using the internal rate of return (IRR). should the company purchase this equipment?

22. CORRECT TEXT

Mow many student enrolments per year ate required for the new busmen English course to break, even at its current price? Snow your calculations

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.

23. LMN Ltd, a British firm, has a financial covenant with its bank mat interest coverage based on earnings before interest taxes, depreciation, and amortization (EBITDA), must be at least 2.5 for each quarter Shown below are summary financial data.





An expected decline m sales will result In net Income of £ 1. 500.000 The other elements of EBITDA will be similar to the most recently completed Quarter.

Given the above information, what is the ratio for the latest completed quarter and do the forecasted results meet the required covenant?

24. An organization s sol of values and code or ethics is an important consideration in human resource decisions for each of the following reasons except