Exam Questions and Answers for CMA-Strategic-Financial-Management Study Guide Questions and Answers!
CMA Part 2: Strategic Financial Management Exam Certification Sample Questions and Practice Exam
NEW QUESTION 66
Explain one reason each Tot and against issuing bonds with a call feature Essay Quality Digital Design (QDD) Inc is a public-traded technology company Selected financial data of QDD for the prior year are as follows
QDD's stock was trading at $160 per share at the beginning of the yea: and at $176 per share by the end of the year. The company paid dividends of S5 per share. The company "s stock had a beta of 1 4 The stock market provided a total return of 12% last year, well above the 3% risk free rate of return QDD is considering the issuance of $200 million of bonds to fund the repurchase of $200 million of its stock.
QDD is evaluating the bond, including its term structure, maturity, and whether it should be callable obtaining the lowest coupon interest is an important objective of QDD. The CFO has estimated that sales for the current year would remain the same as last year and the new bond would add S12 million in annual interest payments.
Answer:
Explanation:
See the explanation for the answer.
Explanation
A callable bond allows companies to pay off their debt early and benefit from favorable interest rate drops a callable bono benefit the issuer and so investors of these bonds are compensated with a more attractive interest rate man on otherwise similar non-callable bonds However callable bonds are more expensive.
NEW QUESTION 67
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. the two stocks have equal positive beta coefficients
- C. there is no correlation between the stocks.
- D. there perfect positive correlation between the stocks
Answer: A
NEW QUESTION 68
if a company increases the price of its product from $3010 $35, demand would decrease from 30, 000 units to
20.000 units. What is the price elasticity of demand for the company using the midpoint formula?
- A. 2.0
- B. 2.7
- C. 0.5
- D. 0.4
Answer: B
NEW QUESTION 69
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?
- A. An increase in the selling price of the manufactured product
- B. An increase m the net profits for each of the individual cartel members
- C. An increase in the output of the manufactured product
- D. A selling price where marginal revenue equals marginal cost
Answer: C
NEW QUESTION 70
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.
- A. current salvage value of the existing bus
- B. accumulated depreciation of the existing bus
- C. annual operating cost of the new bus
- D. original cost of the new bus.
Answer: B
NEW QUESTION 71
SSA inc. issues 4% bonds with a lace value of $500,000 when the market rate of interest is 3% for similar bonds. The bonds mature in 10 years, and pay interest every six months. Which one of the following is closest to the amount of cash SSA will receive upon issued.
- A. $505,000
- B. $500,000
- C. $543,000
- D. $459,000
Answer: C
NEW QUESTION 72
A corporation's financial analyst has identified four potential protects that ate mutually exclusive. Each protect will produce a constant annual cash flow for years 1 through 4, and have an initial investment at time 0 shown below. If the corporation has a weighted average cost of capital of 10%, which project should be selected?
- A. Protect 2
- B. Protect 3
- C. Protect 4
- D. Protect 1
Answer: C
NEW QUESTION 73
Explain two potential benefits for Guda if it acquires Blue Moon.
Essay
Food Depot Ltd, (FDL) is a privately-held company that provides catering services to airlines and operates several restaurant chains including fast food, casual dining, and fine dining restaurants, FDL has been profitable in recent years and has a very strong cash position. FDL's newest division. Food_TO-Go is an online meal ordering and delivery platform acquired by FDL two year ago.
In 20X7, sales for the entire company were $1 billion, with 50% of the business coming from the Airline Catering division. FDL is the country 's leading airline catering services provider and control 60% of the market share. However, the outlook of the airline catering industry is gloomy. The compound annual growth rate of the industry for the past five years was only 0.5% as airline networks have increasingly dropped catering on short domestic flights.
The Food-To-division only contribution 5% of FDL's total sales in 20X7 and is far behind in competing for marketing for market share of the online meal ordering and delivery industry, it is estimated that Food-To-Go's sales were only 20% of the industry leader's sales. However, the outlook for the online meal ordering and delivery services industry is bright. The compound annual growth rate of the industry since it started three years ago was 50%. It is estimated the rapid growth of the industry will continue in the foreseeable future.
Susan Willey, the head of Food-To-Go, does not agree that the Airline Catering division is the best-performing division in the company. Wiley argues that ber division bad the highest ROI in 20X7, and it deserves more capital finding. FDL's requested rate of return is 12%. The selected financial data for the Airline Catering division and Food-To-Go division in 20X7 are as follow (in $ millions)
Answer:
Explanation:
See the explanation for the answer.
Explanation
They will get stability in their earnings and cash flows as the current sources of income is facing a declining trend and no growth and in maturity stage. The unsystem risk can also be diversified by investing in a different industry, hence lower cost of capital for the company.
NEW QUESTION 74
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.
Answer:
Explanation:
See the explanation for the answer.
Explanation
The market is quite sensitive to prices as the change in price is affecting me demand However the company has less opportunity over here to increase the prices for its premium service as the customers would be willing to pay less and get the same service from the competitor.
NEW QUESTION 75
A risk with a high frequency of occurrence but with a low impact, is best managed by which one of the following risk response strategies?
- A. Risk transfer
- B. Risk acceptance
- C. Risk reduction
- D. Risk avoidance
Answer: C
NEW QUESTION 76
To minimize me risk of a two-stock portfolio, a company should most likely purchase stocks that have
- A. negatively correlated expected returns
- B. positively correlated expected returns
- C. equally correlated expected returns
- D. no correlated expected returns
Answer: A
NEW QUESTION 77
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?
- A. 2.50. and will not be compliant in the next quartet
- B. 1.31. and will not be compliant in the next quarter
- C. 2.69 and will not be compliant in the next quarter
- D. 2.59. and will be compliant in the next quarter
Answer: C
NEW QUESTION 78
Below is the income statement and balance sheet for a retail corporation.
What is the corporation's debt to total capital in year 2?
- A. 41%
- B. 6%
- C. 19%
- D. 71%
Answer: C
NEW QUESTION 79
Discuss whether the demand for OLI's new business English course is elastic and explain how OLI can use this information in determining the product price.
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's in elastic and me percentage change in price is greater than the percentage change in the demand. A profile maximizing price where the marginal revenue is equal to marginal cost would be recommendable in this scenario.
NEW QUESTION 80
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. $23.000
- C. $77, 000
- D. $100, 000
Answer: B
NEW QUESTION 81
The internal audit division of a company is investigating a potential fraud in the Accounts Payable department Someone in the department has been writing checks to fictitious vendors and collecting the cash The primary suspect Is an employee who has own with the company for twelve years and recently lost his Did for promotion to Director of Accounts Payable a position which would have given mm a 25% salary increase This employee has been heard complaining to several other employees in the department that he was cheated out of his raise. Which one of the following elements of the fraud triangle is this employee exhibiting?
- A. Pressure
- B. Motive
- C. Rationalization
- D. Opportunity
Answer: C
NEW QUESTION 82
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?
- A. Yes, the IRR is greater than the hurdle rate
- B. No, the IRR is greater than the hurdle rate
- C. Yes, the IRR is less than the hurdle rate
- D. No, the IRR is less than the hurdle rate
Answer: A
NEW QUESTION 83
All of the following describe ethical leaders except
- A. leaders who demonstrate high ethical standards
- B. flexible leaders how new ethical behavior to be negotiable
- C. supportive leaders who encourage employees to adhere to company policy
- D. dedicated leaders who can keep promises and commitment
Answer: B
NEW QUESTION 84
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. 11.7%
- B. 18.1%
- C. 5.6%
- D. 6.0%
Answer: B
NEW QUESTION 85
A co league claims that morality is usually perceived and interpreted differently by different people so there is no method to judge whether one decision is better than another. This is commonly referred to as
- A. comparative ethics
- B. moral philosophy
- C. ethical relativity
- D. moral relativism
Answer: D
NEW QUESTION 86
Discuss whether QDD stock provided a return that was Better, worse, or the same as its investors would have expected using CAPM snow your calculations Essay Quality Digital Design (QDD) Inc is a public-traded technology company Selected financial data of QDD for the prior year are as follows
QDD's stock was trading at $160 per share at the beginning of the yea: and at $176 per share by the end of the year. The company paid dividends of S5 per share. The company "s stock had a beta of 1 4 The stock market provided a total return of 12% last year, well above the 3% risk free rate of return QDD is considering the issuance of $200 million of bonds to fund the repurchase of $200 million of its stock.
QDD is evaluating the bond, including its term structure, maturity, and whether it should be callable obtaining the lowest coupon interest is an important objective of QDD. The CFO has estimated that sales for the current year would remain the same as last year and the new bond would add S12 million in annual interest payments
Answer:
Explanation:
See the explanation for the answer.
Explanation
As per CAPM Model the return is
3% * 1.2 (12-3)
13 8% TSR-S5'(S176-S160)'$160
TSR-13 12%
The return provided of the company stock was lower as the return provided by the capm model was signify higher than it
NEW QUESTION 87
Marsalls Products Inc. manufactures and sells two products CD-ROMs and DVD's. The latest forecast on me products and their costs tor the coming year is shown in the following table.
Note 1: Fixed manufacturing cost of Si.500 000 per year is allocated to products based on the number of machine hours required to produce the product at a rate of S3 per machine hour The Manufacturing Team leader just informed the CEO that a fire occurred at one of the manufacturing lines and that line would be unavailable for the next 12 months. The result is that mere will only be 400 000 machine Hours available The CEO requested the management team to revise the plan for the coming year based on the new constraint. The Marketing Team leader stated that in order to minimize customer complaints about the shortage, a minimum of 100,000 units of each product should be produced With the new information from the Manufacturing and Marketing teams what is the optimal product mix for the coming 12 months'' Assume Marsalls can sell allot its production.
- A. 150.000 CD-ROMS and 125.000 DVD
- B. 120.000 CD-ROM's 140,000 DVD.
- C. 200,000 CD-ROm's a dn 100,000 DVD
- D. 100,000 CD-ROM's and 150,000 DVD'[s
Answer: C
NEW QUESTION 88
Which one of the following statements regarding working capital management is not correct?
- A. The cash, inventory accounts payable and accounts receivable components of working capital are constantly changing during the operating cycle
- B. Seasonal demand for me products can cause working capital problems that must De anticipated and managed
- C. An attempt to minimize carrying costs and shortage costs associated with inventory levels is an objective of working capital management
- D. Increasing costs associated with the manufacture and sale of products will not impact the short-term management of working capital
Answer: D
NEW QUESTION 89
IF a company does not have a code of conduct, the company most likely
- A. is missing important guidance on ethical decision making
- B. can use its statement of values instead to implement ethics in daily decision making
- C. must find another way to express its ethical principles
- D. will lack an expressed statement of values regarding ethical behavior
Answer: A
NEW QUESTION 90
FumiSelf is a global manufacturer of consumer-assembled furniture with a business presence in nearly every country. The Vice President of Production was presented with the following information by the Vice President of Finance as of the end of the current quarter.
- A. Asian division has the highest days' sales in inventory
- B. African division is the most efficient in manage its inventory
- C. North American division has the lowest days' sales in Inventory.
- D. Europe division is the most inefficient in managing its inventory
Answer: D
NEW QUESTION 91
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