Part 2 Special Comprehensive Exam PDF

Part 2 : Part 2 Special Comprehensive Exam on all topics Question 1 - ICMA 10.P2.044 - Ratios: Liquidity, Leverage, Coverage and Activity The Liabilities and Shareholders' Equity section of Mica Corporation's Statement of Financial Position is shown below....

Part 2 : Part 2 Special Comprehensive Exam on all topics Question 1 - ICMA 10.P2.044 - Ratios: Liquidity, Leverage, Coverage and Activity The Liabilities and Shareholders' Equity section of Mica Corporation's Statement of Financial Position is shown below. January 1December 31 Accounts payable $ 32,000 $ 84,000 Accrued liabilities 14,000 11,000 7% bonds payable 95,000 77,000 Common stock ($10 par value) 300,000 300,000 Reserve for bond retirement 12,000 28,000 Retained earnings 155,000 206,000 Total liabilities and shareholders' equity $608,000 $706,000 Mica's debt/equity ratio is A. 25.1%. B. 32.2%. C. 25.6%. D. 33.9%. Question 2 - CMA 685 4.21 - Ratios: Profitability, Market and Profitability Analysis Watson Corporation computed the following items from its financial records for the year just ended: Price-earnings ratio 12 Payout ratio 0.6 Asset turnover 0.9 The dividend yield on Watson's common stock is A. 5.0% B. 7.5% C. 7.2% D. 10.8% Question 3 - CMA 695 1.1 - Ratios: Liquidity, Leverage, Coverage and Activity A higher degree of operating leverage compared with the industry average implies that the firm A. Is less risky. B. Has higher variable costs. C. Has profits that are more sensitive to changes in sales volume. D. Is more profitable. Question 4 - ICMA 10.P2.081 - Ratios: Profitability, Market and Profitability Analysis Ray Company has 530,000 common shares outstanding at year-end. At December 31, for basic earnings per share purposes, Ray computed its weighted average number of shares as 500,000. Prior to issuing its annual financial statements, but after year-end, Ray split its stock 2 for 1. Ray's weighted average number of shares to be used for computing annual basic earnings per share is (c) HOCK international, page 1  Part 2 : Part 2 Special Comprehensive Exam on all topics A. 1,060,000. B. 1,000,000. C. 500,000. D. 530,000. Question 5 - CMA 0697 P2 Q25 - Special Issues A change from the sum-of-the-years'-digits depreciation method to the straight-line depreciation method is an example of a(n) A. accounting principle change. B. accounting estimate change. C. error correction. D. prior-period adjustment. Question 6 - ICMA 10.P2.036 - Ratios: Liquidity, Leverage, Coverage and Activity If a company has a current ratio of 2.1 and pays off a portion of its accounts payable with cash, the current ratio will A. decrease. B. remain unchanged. C. move closer to the quick ratio. D. increase. Question 7 - CMA 692 P2 Q16 - Special Issues If an entity's books of account are not maintained in its functional currency, the FASB Accounting Standards Codification requires remeasurement into the functional currency prior to the translation process. An item that should be remeasured by use of the current exchange rate is A. a plant asset and the associated accumulated depreciation. B. the revenue from a long-term construction contract. C. inventories. D. an investment in bonds to be held until maturity. Question 8 - CMA 1289 P4 Q14 - Ratios: Liquidity, Leverage, Coverage and Activity Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are presented as follows. Cash $ 950,000 Accounts receivable (net) 1,675,000 Inventories 2,806,000 Total current assets $5,431,000 Accounts payable $1,004,000 Accrued liabilities 785,000 Total current liabilities $1,789,000 (c) HOCK international, page 2  Part 2 : Part 2 Special Comprehensive Exam on all topics The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly cash dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to all shareholders of record as of October 12 of the current year. Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend transactions and that the closing entries have been made. Landau Corporation's current ratio was A. Decreased by the dividend declaration and unchanged by the dividend payment. B. Decreased by the dividend declaration and increased by the dividend payment. C. Unchanged by either the dividend declaration or the dividend payment. D. Increased by the dividend declaration and unchanged by the dividend payment. Question 9 - CMA 695 2.2 - Ratios: Liquidity, Leverage, Coverage and Activity CPZ Enterprises had the following account information. Accounts receivable $200,000 Accounts payable 80,000 Bonds payable, due in ten years 10,000 Cash 100,000 Interest payable, due in three months 10,000 Inventory 400,000 Land 250,000 Notes payable, due in six months 50,000 Prepaid expenses 40,000 The company has an operating cycle of five months. What is the company's acid test (quick) ratio? A. 2.14 B. 2.31 C. 1.68 D. 0.68 Question 10 - ICMA 10.P2.059 - Ratios: Liquidity, Leverage, Coverage and Activity Lancaster Inc. had net accounts receivable of $168,000 and $147,000 at the beginning and end of the year, respectively. The company’s net income for the year was $204,000 on $1,700,000 in total sales. Cash sales were 6% of total sales. Lancaster's average accounts receivable turnover ratio for the year is A. 9.51. B. 10.79. C. 10.87. D. 10.15. Question 11 - CMA 692 1.8 - Ratios: Liquidity, Leverage, Coverage and Activity (c) HOCK international, page 3  Part 2 : Part 2 Special Comprehensive Exam on all topics Carlisle Company currently sells 400,000 bottles of perfume each year. Each bottle costs $0.84 to produce and sells for $1.00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000, preferred stock dividends of $2,000 per year, and a 40% tax rate. Carlisle uses the following formulas to determine the company's leverage. Operating leverage = [Q(S − VC)] ÷ [Q(S − VC) − FC] Financial leverage = EBIT ÷ {EBIT − I − [P / (1 − T)]} Total leverage = Q(S − VC) ÷ {Q(S − VC) − FC − I − [P / (1 − T)]} Where: Q=Quantity FC=Fixed Cost VC=Variable Cost S=Selling Price I=Interest Expense P=Preferred Dividends T=Tax Rate EBIT=Earnings Before Interest and Taxes The degree of operating leverage for Carlisle Company is A. 1.2 B. 1.35 C. 2.4 D. 1.78 Question 12 - ICMA 10.P2.023 - Ratios: Liquidity, Leverage, Coverage and Activity Birch Products Inc. has the following current assets. Cash $ 250,000 Marketable securities 100,000 Accounts receivable 800,000 Inventories 1,450,000 Total current assets $2,600,000 If Birch's current liabilities are $1,300,000, the firm's A. quick ratio will decrease if a payment of $100,000 cash is used to purchase inventory. B. current ratio will decrease if a payment of $100,000 cash is used to pay $100,000 of accounts payable. C. current ratio will not change if a payment of $100,000 cash is used to pay $100,000 of accounts payable. D. quick ratio will not change if a payment of $100,000 cash is used to purchase inventory. Question 13 - ICMA 14.P2.004 - Comparative Financial Statement Analysis The following financial information is given for Niska Corporation. Year 1 Year 2 Book value of assets $18,000 $26,000 Market value of equity 18,000 60,000 (c) HOCK international, page 4  Part 2 : Part 2 Special Comprehensive Exam on all topics 12 months 12 months ended Year 1 ended Year 2 Sales $1,000 $1,300 Cost of goods sold 500 700 Operating income $ 500 $ 600 Depreciation expense 200 200 Interest expense 100 100 Pretax income $ 200 $ 300 Income tax expense 80 120 Net income $ 120 $ 180 Using a common-size income statement, did operating income and net income for Niska increase or decrease? A. Operating income decreased; Net income increased. B. Operating income decreased; Net income decreased. C. Operating income increased; Net income increased. D. Operating income increased; Net income decreased. Question 14 - ICMA 10.P2.050 - Ratios: Profitability, Market and Profitability Analysis Marble Savings Bank has received long-term loan applications from three companies in the auto parts manufacturing business and currently has the funds to grant only one of these requests. Specific data, shown below, has been selected from these applications for review and comparison with industry averages. Bailey Nutron Sonex Industry Total sales (millions) $4.27 $3.91 $4.86 $4.30 Net profit margin 9.55% 9.85% 10.05% 9.65% Current ratio 1.82 2.02 1.96 1.95 Return on assets 12.0% 12.6% 11.4% 12.4% Debt/equity ratio 52.5% 44.6% 49.6% 48.3% Financial leverage 1.30 1.02 1.56 1.33 Based on the information above, select the strategy that should be the most beneficial to Marble Savings. A. Grant the loan to Bailey as all the company’s data approximate the industry average. B. Grant the loan to Nutron as both the debt/equity ratio and degree of financial leverage are below the industry average C. Grant the loan to Sonex as the company has the highest net profit margin and degree of financial leverage. D. Marble Savings Bank should not grant any loans as none of these companies represents a good credit risk. Question 15 - ICMA 10.P2.062 - Ratios: Liquidity, Leverage, Coverage and Activity On its year-end financial statements, Caper Corporation showed sales of $3,000,000, net fixed assets of $1,300,000, and total assets of $2,000,000. The company's fixed asset turnover is A. 43.3%. B. 2.3 times. C. 1.5 times. D. 66.7%. (c) HOCK international, page 5  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 16 - ICMA 10.P2.039 - Ratios: Liquidity, Leverage, Coverage and Activity A degree of operating leverage of 3 at 5,000 units means that a A. 3% change in earnings before interest and taxes will cause a 3% change in sales. B. 3% change in sales will cause a 3% change in earnings before interest and taxes. C. 1% change in earnings before interest and taxes will cause a 3% change in sales. D. 1% change in sales will cause a 3% change in earnings before interest and taxes. Question 17 - CMA 679 4.13 - Ratios: Liquidity, Leverage, Coverage and Activity Stock options are frequently provided to officers of companies. Stock options that are exercised improve A. Basic earnings per share. B. The ownership interest of existing stockholders. C. The debt-to-equity ratio. D. The total asset turnover. Question 18 - ICMA 10.P2.083 - Ratios: Profitability, Market and Profitability Analysis Roy Company had 120,000 common shares and 100,000 preferred shares outstanding at the close of the prior year. During the current year Roy repurchased 12,000 common shares on March 1, sold 30,000 common shares on June 1, and sold an additional 60,000 common shares on November 1. No change in preferred shares outstanding occurred during the year. The number of shares of stock outstanding to be used in the calculation of basic earnings per share at the end of the current year is A. 198,000. B. 137,500. C. 100,000. D. 298,000. Question 19 - ICMA 10.P2.071 - Ratios: Profitability, Market and Profitability Analysis The following information concerning Arnold Company's common stock was included in the company's financial reports for the last two years. Year 2 Year 1 Market price per share on December 31 $60 $50 Par value per share 10 10 Earnings per share 3 3 Dividends per share 1 1 Book value per share on December 31 36 34 Based on the price-earnings information, investors would most likely consider Arnold's common stock to A. indicate inferior investment decisions by management in Year 2. B. show a positive trend in growth opportunities in Year 2 compared to Year 1. C. be overvalued at the end of Year 2. D. show a decline in growth opportunities in Year 2 compared to Year 1. (c) HOCK international, page 6  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 20 - CMA 695 2.3 - Ratios: Liquidity, Leverage, Coverage and Activity CPZ Enterprises had the following account information. Accounts receivable $200,000 Accounts payable 80,000 Bonds payable, due in ten years 10,000 Cash 100,000 Interest payable, due in three months 10,000 Inventory 400,000 Land 250,000 Notes payable, due in six months 50,000 Prepaid expenses 40,000 The company has an operating cycle of five months. What will happen to the current and quick ratios if CPZ Enterprises uses cash to pay 50 percent of the accounts payable? A. Both ratios will decrease. B. The current ratio will increase and the quick ratio will decrease. C. Both ratios will increase. D. The current ratio will decrease and the quick ratio will increase. Question 21 - ICMA 10.P2.069 - Ratios: Profitability, Market and Profitability Analysis At the end of its fiscal year on December 31, 20X0, Merit Watches had total shareholders' equity of $24,209,306. Of this total, $3,554,405 was preferred equity. During the 20X1 fiscal year, Merit's net income after tax was $2,861,003. During 20X1, Merit paid preferred share dividends of $223,551 and common share dividends of $412,917. At December 31, 20X1, Merit had 12,195,799 common shares outstanding and the company did not sell any common shares during the year. What was Merit Watch's book value per share on December 31, 20X1? A. $2.17. B. $1.91. C. $2.20. D. $1.88. Question 22 - CMA 688 P4 Q20 - Special Issues Foreign currency gains and losses included in the other comprehensive income section of a consolidated balance sheet represent A. foreign currency transaction gains and losses. B. the amount resulting from translating foreign currency financial statements into the reporting currency. C. remeasurement gains and losses. D. accounting not in accordance with generally accepted accounting principles. (c) HOCK international, page 7  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 23 - CMA 1295 2.21 - Comparative Financial Statement Analysis In assessing the financial prospects for a firm, financial analysts use various techniques. An example of vertical, common-size analysis is A. A comparison in financial ratio form between two or more firms in the same industry. B. Advertising expense increased by 3% over the previous year. C. Advertising expense is 4% of sales. D. An assessment of the relative stability of a firm's level of vertical integration. Question 24 - ICMA 10.P2.168 - Working Capital Management Which one of the following is not explicitly considered in the standard calculation of Economic Order Quantity (EOQ)? A. Quantity discounts. B. Level of sales. C. Carrying costs. D. Ordering costs. Question 25 - CMA 1296 1.15 - Working Capital Management The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified a number of sources. One of them is: Borrow $110,000 from a bank at 12% interest. A 9% compensating balance would be required. Assume a 360-day year in all of your calculations. The cost of this alternative is: A. 12.0% B. 13.2% C. 9.0% D. 21.0% Question 26 - CMA 688 1.9 - L-T Financial Management-Financial Instruments Each share of nonparticipating, 8%, cumulative preferred stock in a company that meets its dividend obligations has all of the following characteristics except A. No principal repayments. B. Voting rights in corporate elections. C. Dividend payments that are not tax deductible by the company. D. A superior claim to common stock equity in the case of liquidation. Question 27 - CMA 1293 1.19 - Working Capital Management Starrs Company has current assets of $300,000 and current liabilities of $200,000. Starrs could increase its working (c) HOCK international, page 8  Part 2 : Part 2 Special Comprehensive Exam on all topics capital by the A. Refinancing of $50,000 of short-term debt with long-term debt. B. Purchase of $50,000 of temporary investments for cash. C. Prepayment of $50,000 of next year's rent. D. Collection of $50,000 of accounts receivable. Question 28 - CMA 1290 1.30 - Working Capital Management Lawson Company has the opportunity to increase annual sales $100,000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense is expected to be 15%, and collection costs will be 5%. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Lawson accepts this opportunity, the company's after-tax profit will increase by A. $9,000. B. $10,000. C. $6,000. D. $4,000. Question 29 - CMA 697 1.15 - Working Capital Management The treasury analyst for Garth Manufacturing has estimated the cash flows for the first half of next year (ignoring any short-term borrowings) as follows. Cash (millions) Inflows Outflows January $2 $1 February 2 4 March 2 5 April 2 3 May 4 2 June 5 3 Garth has a line of credit of up to $4 million on which it pays interest monthly at a rate of 1% of the amount utilized. Garth is expected to have a cash balance of $2 million on January 1 and no amount utilized on its line of credit. Assuming all cash flows occur at the end of the month, approximately how much will Garth pay in interest during the first half of the year? A. Zero. B. $61,000 C. $132,000 D. $80,000 Question 30 - CMA 688 1.15 - Working Capital Management The best example of a marketable security with minimal risk would be A. The common stock of an Aaa-rated company. B. Gold. C. Municipal bonds. (c) HOCK international, page 9  Part 2 : Part 2 Special Comprehensive Exam on all topics D. The commercial paper of an Aaa-rated company. Question 31 - HOCK CFMQ4 - L-T Financial Management-Financial Instruments A share has a market price of $2.50. It is expected to be able to pay a steady dividend of 30 cents per share each year starting in one year's time. There will not be any growth in dividends. The stock's beta is 0.8, and the risk-free rate is 3%. The investors' required rate of return on the shares is: A. 30% B. 12.0% C. 10.2% D. 15% Question 32 - ICMA 10.P2.173 - Working Capital Management The Texas Corporation is considering the following opportunities to purchase an investment at the following amounts and discounts. Term Amount Discount 90 days $80,000 5% 180 days 75,000 6% 270 days 100,000 5% 360 days 60,000 10% Which opportunity offers the Texas Corporation the highest annual yield? A. 270-day investment. B. 360-day investment. C. 90-day investment. D. 180-day investment. Question 33 - CMA 691 1.6 - Working Capital Management When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is A. 35.3%. B. 24.0%. C. 36.0%. D. 36.7%. Question 34 - ICMA 10.P2.160 - Working Capital Management Locar Corporation had net sales last year of $18,600,000 (of which 20% were installment sales). It also had an average accounts receivable balance (including the installment receivables) of $1,380,000. Credit terms are 2/10, net 30. Based on a 360-day year, Locar’s average collection period last year was A. 33.4 days. (c) HOCK international, page 10  Part 2 : Part 2 Special Comprehensive Exam on all topics B. 26.2 days. C. 26.7 days. D. 27.3 days. Question 35 - CMA 693 1.15 - Raising Capital The characteristics of venture capital include all of the following except A. The use of common stock for most placements. B. A minimum holding period of 5 years for new securities. C. A lack of liquidity for a period of time. D. Initial private placement for the majority of issues. Question 36 - CMA 1288 1.2 H2 - L-T Financial Management-Cost of Capital Which of the following is true regarding the calculation of a firm's cost of capital? A. The cost of capital is the cost of equity. B. The time value of money should be excluded from the calculations. C. All costs should be expressed as pre-tax costs. D. The cost of capital of a firm is the weighted-average cost of its various financing components. Question 37 - CMA 693 1.18 - L-T Financial Management-Financial Instruments The par value of a common stock represents A. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings. B. a theoretical value of $100 per share of stock with any differences entered in the issuing corporation's records as discount or premium on common stock. C. the total value of the stock that must be entered in the issuing corporation's records. D. the estimated market value of the stock when it was issued. Question 38 - ICMA 10.P2.111 - L-T Financial Management-Financial Instruments Which one of the following provides the best measure of interest rate risk for a corporate bond? A. Yield to maturity. B. Duration. C. Maturity. D. Bond rating. Question 39 - CMA 689 1.6 - L-T Financial Management-Financial Instruments (c) HOCK international, page 11  Part 2 : Part 2 Special Comprehensive Exam on all topics The equity section of Allen Corporation's statement of financial position is presented as follows. Preferred stock ($100 par value) $ 8,000,000 Common stock ($5 par value) 5,000,000 Paid-in capital in excess of par 12,000,000 Retained earnings 6,000,000 Net worth $31,000,000 The common shareholders of Allen Corporation have preemptive rights. If Allen Corporation issues 200,000 additional shares of common stock at $6 per share, a current holder of 10,000 shares of Allen Corporation's common stock must be given the option to buy A. 500 additional shares. B. 2,000 additional shares. C. 2,400 additional shares. D. 1,667 additional shares. Question 40 - ICMA 10.P2.155 - Working Capital Management Foster Products is reviewing its trade credit policy with respect to the small retailers to which it sells. Four plans have been studied and the results are as follows. Annual Bad Collection Accounts Plan Revenue Debt Costs ReceivableInventory A $200,000$ 1,000 $1,000 $20,000 $40,000 B 250,000 3,000 2,000 40,000 50,000 C 300,000 6,000 5,000 60,000 60,000 D 350,000 12,000 8,000 80,000 70,000 The information shows how various annual expenses such as bad debts and the cost of collections change as sales change. The average balance of accounts receivable and inventory have also been projected. The cost of the product to Foster is 80% of the selling price, after-tax cost of capital is 15%, and Foster's effective income tax rate is 30%. What is the optimal plan for Foster to implement? A. Plan C. B. Plan D. C. Plan A. D. Plan B. Question 41 - CMA 1290 1.19 - Working Capital Management During the year, Mason Company's current assets increased by $120, current liabilities decreased by $50, and net working capital A. Did not change. B. Decreased by $170. C. Increased by $70. D. Increased by $170. Question 42 - CIA 1191 IV.57 - L-T Financial Management-Cost of Capital (c) HOCK international, page 12  Part 2 : Part 2 Special Comprehensive Exam on all topics A firm seeking to optimize its capital budget has calculated its marginal cost of capital and projected rates of return on several potential projects. The optimal capital budget is determined by A. Calculating the point at which marginal cost of capital meets the projected rate of return, assuming that the most profitable projects are accepted first. B. Accepting all potential projects with projected rates of return lower than the highest marginal cost of capital. C. Accepting all potential projects with projected rates of return exceeding the lowest marginal cost of capital. D. Calculating the point at which average marginal cost meets average projected rate of return, assuming the largest projects are accepted first. Question 43 - CMA 1291 1.7 - L-T Financial Management-Financial Instruments A call provision A. provides an organization flexibility in financing if interest rates fall. B. protects investors against margin calls. C. lowers the investors' required rate of return. D. allows bondholders to require the organization to retire the bond before original maturity. Question 44 - CIA 590 IV.49 - L-T Financial Management-Cost of Capital A firm's optimal capital structure A. maximizes the firm's degree of financial leverage. B. maximizes the price of the firm's stock. C. minimizes the firm's tax liability. D. minimizes the firm's risk. Question 45 - ICMA 10.P2.130 - L-T Financial Management-Cost of Capital Kielly Machines Inc. is planning an expansion program estimated to cost $100 million. Kielly is going to raise funds according to its target capital structure shown below. Debt 0.30 Preferred stock 0.24 Equity 0.46 Kielly had net income available to common shareholders of $184 million last year of which 75% was paid out in dividends. The company has a marginal tax rate of 40%. Additional data: The before-tax cost of debt is estimated to be 11%. The market yield of preferred stock is estimated to be 12%. The after-tax cost of common stock is estimated to be 16%. What is Kielly's weighted average cost of capital? A. 14.00%. B. 12.22%. (c) HOCK international, page 13  Part 2 : Part 2 Special Comprehensive Exam on all topics C. 13.00%. D. 13.54%. Question 46 - CIA 1190 IV.53 - L-T Financial Management-Financial Instruments Which of the following is directly applied in determining the value of a stock when using the dividend growth model? A. The firm's capital structure. B. The firm's liquidity. C. The investors' required rate of return on the firm's stock. D. The firm's cash flows. Question 47 - CMA 1290 1.28 - Working Capital Management Corbin, Inc. can issue 3-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs will be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year, will be A. 8.00%. B. 8.17%. C. 2.00%. D. 8.66%. Question 48 - ICMA 10.P2.178 - Working Capital Management A firm is given payment terms of 3/10, net 90 and forgoes the discount, paying on the net due date. Using a 360-day year and ignoring the effects of compounding, what is the effective annual interest rate cost? A. 13.9%. B. 12.4%. C. 12.0%. D. 13.5%. Question 49 - CMA 688 1.11 - L-T Financial Management-Financial Instruments A sinking fund for a bond issue is a(n) A. periodic payment by a debtor to pay the annual interest costs prescribed by the bond issue. B. alternative to traditional long-term debt financing. C. periodic payment by a debtor to pay for the initial issuing costs of the bond issue. D. periodic payment by a debtor to accumulate funds for the retirement of the bonds when they mature. Question 50 - CMA 694 1.4 - International Finance (c) HOCK international, page 14  Part 2 : Part 2 Special Comprehensive Exam on all topics If the central bank of a country raises interest rates sharply, the country's currency will most likely A. Remain unchanged in value. B. Decrease in relative value. C. Increase in relative value. D. Decrease sharply in value at first and then return to its initial value. Question 51 - ICMA 10.P2.116 - L-T Financial Management-Financial Instruments The call provision in some bond indentures allows A. the issuer to pay a premium in order to prevent bondholders from redeeming bonds. B. the issuer to exercise an option to redeem the bonds. C. the bondholder to redeem the bond early by paying a call premium. D. the bondholder to exchange the bond, at no additional cost, for common shares. Question 52 - HOCK RRI 9 - Risk and Return An efficient portfolio is a portfolio that is in the feasible set of portfolios and A. offers the highest possible expected return for a given level of risk or offers the lowest possible risk for a given level of expected return. B. offers the highest possible expected return for the lowest possible level of risk. C. its historical returns have been above those of its benchmark for 8 of the last 10 years. D. offers the lowest possible risk for the highest possible expected return. Question 53 - CMA Sample Q1.8 - Working Capital Management A major supplier has offered Alpha Corporation a year-end special purchase whereby Alpha could purchase 180,000 cases of sport drink at $10 per case. Alpha normally orders 30,000 cases per month at $12 per case. Alpha's cost of capital is 9%. In calculating the overall opportunity cost of this offer, the cost of carrying the increased inventory would be A. $40,500 B. $64,800 C. $81,000 D. $32,400 Question 54 - ICMA 10.P2.165 - Working Capital Management Paint Corporation expects to use 48,000 gallons of paint per year costing $12 per gallon. Inventory carrying cost is equal to 20% of the purchase price. The company uses its inventory at a constant rate. The lead time for placing the order is 3 days, and Paint Corporation holds 2,400 gallons of paint as safety stock. If the company orders 2,000 gallons of paint per order, what is the cost of carrying inventory? A. $5,280 (c) HOCK international, page 15  Part 2 : Part 2 Special Comprehensive Exam on all topics B. $2,400 C. $8,160 D. $5,760 Question 55 - ICMA 10.P2.126 - L-T Financial Management-Financial Instruments All of the following are characteristics of preferred stock except that A. its dividends are tax deductible to the issuer. B. it may be converted into common stock. C. it usually has no voting rights. D. it may be callable at the option of the corporation. Question 56 - CMA 697 1.11 - Risk and Return When purchasing temporary investments, which one of the following best describes the risk associated with the ability to sell the investment in a short period of time without significant price concessions? A. Interest-rate risk. B. Financial risk. C. Purchasing-power risk. D. Liquidity risk. Question 57 - CMA 685 1.1 - Raising Capital A company can finance an equipment purchase through a loan. Alternatively, it often can obtain the same equipment through a lease arrangement. A factor that would not be considered when comparing the lease financing with the loan financing is: A. Whether the lessor and lessee have different tax reduction opportunities. B. Whether the property category has a history of rapid obsolescence. C. The capacity of the equipment. D. Whether the lessor has a higher cost of capital than the lessee. Question 58 - CMA 696 1.14 - Working Capital Management Which one of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing? A. This market provides a broad distribution for borrowing. B. This market provides more funds at lower rates than other methods provide. C. There are no restrictions as to the type of corporation that can enter into this market. D. The borrower avoids the expense of maintaining a compensating balance with a commercial bank. (c) HOCK international, page 16  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 59 - CMA 690 1.13 - L-T Financial Management-Cost of Capital Colt, Inc. is planning to use retained earnings to finance anticipated capital expenditures. The beta coefficient for Colt's stock is 1.15, the risk-free rate of interest is 8.5%, and the market return is estimated at 12.4%. If a new issue of common stock were used in this model, the flotation costs would be 7%. By using the Capital Asset Pricing Model (CAPM) equation: R = RF + β(RM - RF) The cost of using retained earnings to finance the capital expenditures is: A. 12.40%. B. 12.99%. C. 13.96%. D. 14.71%. Question 60 - CMA 688 1.23 - International Finance If risk is purposely undertaken in the foreign currency market, the investor in foreign currency then becomes A. Involved in hedging. B. An exporter. C. An arbitrageur. D. A speculator. Question 61 - CMA 1288 5.12 - Marginal Analysis Management accountants are frequently asked to analyze various decision situations including the following. 1. Alternative uses of plant space, to be considered in a make/buy decision. 2. Joint production costs incurred, to be considered in a sell-at-split versus a process-further decision. 3. Research and development costs incurred in prior months, to be considered in a product-introduction decision. 4. The cost of a special device that is necessary if a special order is accepted. 5. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision. The costs described in situations 1 and 4 are A. Discretionary costs. B. Sunk costs. C. Relevant costs. D. Prime costs. Question 62 - ICMA 10.P2.210 - Cost-Volume-Profit (CVP) Analysis For the year just ended, Silverstone Company's sales revenue was $450,000. Silverstone’s fixed costs were $120,000 and its variable costs amounted to $270,000. For the current year sales are forecasted at $500,000. If the fixed costs do not change, Silverstone’s profits this year will be A. $60,000. (c) HOCK international, page 17  Part 2 : Part 2 Special Comprehensive Exam on all topics B. $110,000. C. $80,000. D. $200,000. Question 63 - CMA 1296 4.4 - Marginal Analysis Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit: Selling price $150 Direct materials $20 Direct labor 15 Variable manufacturing overhead 12 Fixed manufacturing overhead 30 Shipping and handling 3 Fixed selling and administrative 10 Total costs $90 Kator Co. has received a special, one-time, order for 1,000 KB-96 parts. Assume that Kator is operating at full capacity and that the contribution margin of the output that would be displaced by the special order is $10,000. The minimum price that is acceptable, using the original data, for this one-time special order is in excess of A. $100 B. $87 C. $60 D. $70 Question 64 - CIA 1186 IV.10 - Cost-Volume-Profit (CVP) Analysis A company has just completed the final development of its only product, general recombinant bacteria, which can be programmed to kill most insects before dying themselves. The product has taken 3 years and $6,000,000 to develop. The following costs are expected to be incurred on a monthly basis for the normal production level of 1,000,000 pounds of the new product: Direct materials $ 300,000 Direct labor 1,250,000 Variable factory overhead 450,000 Fixed factory overhead 2,000,000 Variable selling, general, and adm. expenses 900,000 Fixed selling, general, and adm. expenses 1,500,000 Total: $6,400,000 At a sales price of $5.90 per pound, the sales in pounds necessary to ensure a $3,000,000 profit the first year would be (to the nearest thousand pounds): A. 25,600,000 pounds. B. 15,000,000 pounds. C. 13,017,000 pounds. D. 14,000,000 pounds. (c) HOCK international, page 18  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 65 - CMA 690 5.26 - Marginal Analysis Which one of the following costs would be relevant in short-term decision making? A. Opportunity costs that are the same in the considered alternatives. B. Incremental fixed costs. C. Total variable costs that are the same in the considered alternatives. D. All costs of inventory. Question 66 - CMA 690 5.24 - Marginal Analysis Relevant costs refer to A. Costs that would be incurred within the relevant range of production. B. All fixed costs. C. Anticipated future costs that will differ among various alternatives. D. Past costs that are expected to be different in the future. Question 67 - ICMA 10.P2.247.01 247 - Marginal Analysis Verla Industries is trying to decide which one of the following two options to pursue. Either option will take effect on January 1st of the next year. Option One - Acquire a New Finishing Machine. The cost of the machine is $1,000,000 and will have a useful life of five years. Net pre-tax cash flows arising from savings in labor costs will amount to $100,000 per year for five years. Depreciation expense will be calculated using the straight-line method for both financial and tax reporting purposes. As an incentive to purchase, Verla will receive a trade-in allowance of $50,000 on their current fully depreciated finishing machine. Option Two - Outsource the Finishing Work. Verla can outsource the work to LM Inc. at a cost of $200,000 per year for five years. If they outsource, Verla will scrap their current fully depreciated finishing machine. Verla's effective income tax rate is 40%. The weighted-average cost of capital is 10%. When comparing the two options, the $50,000 trade-in allowance would be considered A. irrelevant because it does not affect cash. B. relevant because it is an increase in cash outflows. C. relevant because it is a decrease in cash outflow. D. irrelevant because it does not affect taxes. Question 68 - ICMA 10.P2.254 - Marginal Analysis Following are the operating results of the two segments of Parklin Corporation. Segment A Segment B Total Sales $10,000 $15,000 $25,000 (c) HOCK international, page 19  Part 2 : Part 2 Special Comprehensive Exam on all topics Variable cost of goods sold 4,000 8,500 12,500 Fixed costs of goods sold 1,500 2,500 4,000 Gross margin $ 4,500 4,000 8,500 Variable selling and administrative 2,000 3,000 5,000 Fixed selling and administrative 1,500 1,500 3,000 Operating income (loss) $ 1,000 $ (500) $ 500 Variable costs of goods sold are directly related to the operating segments. Fixed costs of goods sold are allocated to each segment based on the number of employees. Fixed selling and administrative expenses are allocated equally. If Segment B is eliminated, $1,500 of fixed costs of goods sold would be eliminated. Assuming Segment B is closed, the effect on operating income would be A. a decrease of $2,500. B. a decrease of $2,000. C. an increase of $500. D. an increase of $2,000. Question 69 - ICMA 10.P2.233 - Marginal Analysis Daily sales and cost data for Crawford Industries are shown below. Sales Total Units $ Costs 20 $2,000 $1,200 21 2,090 1,250 22 2,170 1,290 23 2,240 1,330 24 2,300 1,380 25 2,350 1,440 The marginal cost of the 23rd unit is A. $50.00. B. $40.00. C. $30.00. D. $57.83. Question 70 - CMA 690 5.16 - Cost-Volume-Profit (CVP) Analysis Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device: Direct labor $180 Direct materials 240 Factory overhead 105 Total variable production costs $525 Marketing costs 75 Total variable costs $600 Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years. (c) HOCK international, page 20  Part 2 : Part 2 Special Comprehensive Exam on all topics Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor, and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company's breakeven point would increase (decrease) (rounded to the nearest whole unit) by A. 1,604 units. B. 3,960 units. C. (1,620) units. D. 407 units. Question 71 - CMA 696 4.18 - Marginal Analysis Which one of the following is most relevant to a manufacturing equipment replacement decision? A. Disposal price of the old equipment. B. Original cost of the old equipment. C. Gain or loss on the disposal of the old equipment. D. A lump-sum write-off amount from the disposal of the old equipment. Question 72 - ICMA 10.P2.230 - Marginal Analysis Auburn Products Inc. has compiled the following daily cost information for its manufacturing operation. Output (units) Fixed Cost Variable Cost 0 $2,000 $ 0 1 2,000 200 2 2,000 380 3 2,000 550 4 2,000 700 5 2,000 860 6 2,000 1,040 7 2,000 1,250 8 2,000 1,500 Auburn's marginal cost for the 7th unit is A. $179. B. $464. C. $286. D. $210. Question 73 - ICMA 10.P2.239 - Marginal Analysis Raymund Inc. currently sells its only product to Mall-Stores. Raymund has received a one-time-only order for 2,000 units from another buyer. Sale of the special order items will not require any additional selling effort. Raymund has a manufacturing capacity to produce 7,000 units. Raymund has an effective income tax rate of 40%. Raymund’s Income Statement, before consideration of the one-time-only order, is as follows. Sales (5,000 units at $20 per unit) $100,000 Variable manufacturing costs $50,000 Variable selling costs 15,000 65,000 (c) HOCK international, page 21  Part 2 : Part 2 Special Comprehensive Exam on all topics Contribution margin 35,000 Fixed manufacturing costs 16,000 Fixed selling costs 4,000 20,000 Operating income 15,000 Income taxes 6,000 Net income $9,000 In negotiating a price for the special order, Raymund should set the minimum per unit selling price at A. $13. B. $18. C. $17. D. $10. Question 74 - CMA 696 4.11 - Marginal Analysis Listed below are a company's monthly unit costs to manufacture and market a particular product. Manufacturing costs: Direct materials $2.00 Direct labor 2.40 Variable indirect 1.60 Fixed indirect 1.00 Marketing costs: Variable 2.50 Fixed 1.50 The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing operating income? A. $7.75 B. $5.25 C. $6.75 D. $8.50 Question 75 - CMA 694 4.25 - Marginal Analysis Condensed monthly operating income data for Korbin Inc. for May follows: Urban Suburban Store Store Total Sales $80,000 $120,000 $200,000 Variable costs 32,000 84,000 116,000 Contribution margin $48,000 $36,000 $84,000 Direct fixed costs 20,000 40,000 60,000 Store segment margin $28,000 $(4,000) $24,000 Common fixed cost 4,000 6,000 10,000 Operating income $24,000 $(10,000) $14,000 (c) HOCK international, page 22  Part 2 : Part 2 Special Comprehensive Exam on all topics Additional information regarding Korbin's operations follows: One-fourth of each store's direct fixed costs would continue if either store were closed. Korbin allocates common fixed costs to each store on the basis of sales dollars. Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales. The operating results for May are representative of all months. A decision by Korbin to close the Suburban Store would result in a monthly increase (decrease) in Korbin's operating income of A. $(6,000) B. $4,000 C. $(10,800) D. $(1,200) Question 76 - ICMA 10.P2.242 - Marginal Analysis Green Corporation builds custom-designed machinery. A review of selected data and the company's pricing policies revealed the following. A 10% commission is paid on all sales orders. Variable and fixed factory overheads total 40% and 20%, respectively, of direct labor. Corporate administrative costs amount to 10% of direct labor. When bidding on jobs, Green adds a 25% markup to the total of all factory and administrative costs to cover income taxes and produce a profit. The firm's income tax rate is 40%. The company expects to operate at a maximum of 80% of practical capacity. Green recently received an invitation to bid on the manufacture of some custom machinery for Kennendale, Inc. For this project, Green's production accountants estimate the material and labor costs will be $66,000 and $120,000, respectively. Accordingly, Green submitted a bid to Kennendale in the amount of $375,000. Feeling Green's bid was too high, Kennendale countered with a price of $280,000. Which one of the following options should be recommended to Green's management? A. Accept the counteroffer even though the order will decrease operating income. B. Reject the counteroffer because the order will decrease operating income. C. Reject the counteroffer even though the order will increase operating income. D. Accept the counteroffer because the order will increase operating income. Question 77 - CMA 1294 4.2 - Cost-Volume-Profit (CVP) Analysis United Industries manufactures three products at its highly automated factory. The products are very popular, with demand far exceeding the company's ability to supply the marketplace. To maximize profit, management should focus on each product's A. Segment margin. B. Contribution margin ratio. C. Contribution margin per machine hour. D. Gross margin. (c) HOCK international, page 23  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 78 - CMA 1290 4.4 - Cost-Volume-Profit (CVP) Analysis MultiFrame Company has the following revenue and cost budgets for the two products it sells. Plastic Frames Glass Frames Budgeted unit sales 100,000 300,000 Sales price $10.00 $15.00 Direct materials (2.00) (3.00) Direct labor (3.00) (5.00) Fixed overhead (3.00) (4.00) Net income per unit $2.00 $3.00 The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, MultiFrame rounds to the nearest cent and unit. The total number of units MultiFrame needs to produce and sell to break even is A. 300,000 units. B. 354,545 units. C. 150,000 units. D. 177,273 units. Question 79 - CMA 692 4.22 - Cost-Volume-Profit (CVP) Analysis Mason Enterprises has prepared the following budget for the month of July. Selling Price Variable Cost Sales Per Unit Per Unit Per Unit Product A $10.00 $4.00 15,000 Product B 15.00 8.00 20,000 Product C 18.00 9.00 5,000 Assuming that total fixed costs will be $150,000 and the mix remains constant, the breakeven point (rounded to the next higher whole unit) will be A. 21,429 units. B. 21,819 units. C. 20,455 units. D. 6,818 units. Question 80 - CIA 1192 IV.17 - Cost-Volume-Profit (CVP) Analysis Data regarding four different products manufactured by an organization are presented as follows. Direct material and direct labor are readily available from the respective resource markets. However, the manufacturer is limited to a maximum of 3,000 machine hours per month. Products A B C D Unit price $15 $18 $20 $25 Variable cost $ 7 $11 $10 $16 Units Produced per Machine (c) HOCK international, page 24  Part 2 : Part 2 Special Comprehensive Exam on all topics Hour A B C D 3 4 2 3 The product that is the most profitable for the manufacturer in this situation is: A. Product C. B. Product B. C. Product D. D. Product A. Question 81 - CMA 1295 4.4 - Capital Budgeting Process The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,000. Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40%. What is the net cash flow for the third year that Moore Corporation should use in a capital budgeting analysis? A. $68,000 B. $79,000 C. $68,400 D. $64,200 Question 82 - ICMA 10.P2.327 - Capital Budgeting Methods Stennet company is considering two mutually exclusive projects. The company's cost of capital is 10%. The net present value (NPV) profiles of the two projects are as follows. Discount Rate NPV ($000) NPV ($000) (percent) Project A Project B 0 $2,220 $1,240 10 681 507 12 495 411 14 335 327 16 197 252 18 77 186 20 (26) 128 22 (115) 76 24 (193) 30 26 (260) (11) 28 (318) (47) The company president is of the view that Project B should be accepted because it has the higher internal rate of return (IRR). the president requested John Mack, the CFO, to make a recommendation. Which one of the following options should Mack recommend to the president. A. Accept Project A because it has an IRR higher than that of Project B. B. Accept Project A because at a 10% discount rate it has an NPV that is greater than that of Project B. (c) HOCK international, page 25  Part 2 : Part 2 Special Comprehensive Exam on all topics C. Accept both Projects A and B as the IRR for each project is greater than the cost of capital. D. Agree with the president. Question 83 - ICMA 13.P2.027 - Capital Budgeting Methods With regard to a capital investment project, which one of the following statements best describes the relationship between the cost of capital and the expected internal rate of return? A. The internal rate of return should be compared to a pre-determined benchmark without regard to the cost of capital. B. If the internal rate of return exceeds zero, the project will be profitable. C. The internal rate of return must exceed the cost of capital for the project to be acceptable. D. The cost of capital must exceed the internal rate of return for the project to be acceptable. Question 84 - CMA 691 4.18 - Capital Budgeting Methods The accounting rate of return A. Is synonymous with the internal rate of return. B. Focuses on income as opposed to cash flows. C. Is inconsistent with the divisional performance measure known as return on investment. D. Recognizes the time value of money. Question 85 - ICMA 10.P2.286 - Capital Budgeting Process Cora Lewis is performing an analysis to determine if her firm should invest in new equipment to produce a product recently developed by her firm. The other option would be to abandon the product. She uses the net present value (NPV) method and discounts at the firm's cost of capital. Lewis is contemplating how to handle the following items. I. The book value of warehouse space currently used by another division. II. Interest payments on debt to finance the equipment. III. Increased levels of accounts payable and inventory. IV. R&D spent in prior years and treated as a deferred asset for book and tax purposes. Which of the above items are relevant for Lewis to consider in determining the cash flows for her NPV calculation? A. IV only. B. III only. C. I, II, III and IV. D. II and III only. Question 86 - ICMA 10.P2.322.01 322 - Capital Budgeting Methods Foster Manufacturing is analyzing a capital investment project that is forecasted to produce the following cash flows and net income. After-Tax Net Years Cash Flows Income 0 $(20,000) $ 0 (c) HOCK international, page 26  Part 2 : Part 2 Special Comprehensive Exam on all topics 1 6,000 2,000 2 6,000 2,000 3 8,000 2,000 4 8,000 2,000 If Foster's cost of capital is 12%, the net present value for this project is A. $6,998. B. $924. C. $(1,600). D. $6,074. Question 87 - CMA 1294 4.21 - Capital Budgeting Methods In evaluating a capital budget project, the use of the net present value (NPV) model is generally not affected by the A. Method of funding the project. B. Initial cost of the project. C. Amount of added working capital needed for operations during the term of the project. D. Type of depreciation used. Question 88 - ICMA 10.P2.325 - Capital Budgeting Methods Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of $150,000 and will operate for five years. The cash flows associated with these projects are as follows. Year Project X Project Y 1 $ 47,000 $ 0 2 47,000 0 3 47,000 0 4 47,000 0 5 47,000 280,000 Total $235,000 $280,000 Staten's required rate of return is 10 percent. Using the net present value method, which one of the following actions would you recommend to Staten? A. Accept Project X, and reject Project Y. B. Reject Projects X and Y. C. Accept Projects X and Y. D. Accept Project Y, and reject Project X. Question 89 - ICMA 08.P3.171 - Capital Budgeting Methods Which one of the following methods for evaluating capital projects is the least useful from an investment analysis point of view? A. Internal rate of return. B. Net present value. (c) HOCK international, page 27  Part 2 : Part 2 Special Comprehensive Exam on all topics C. Accounting rate of return. D. Payback. Question 90 - ICMA 10.P2.329 - Capital Budgeting Methods Which of the following is not a shortcoming of the Internal Rate of Return (IRR) method? A. IRR does not take into account the difference in the scale of investment alternatives. B. Sign changes in the cash flow stream can generate more than one IRR. C. IRR is easier to visualize and interpret than net present value (NPV). D. IRR assumes that funds generated from a project will be reinvested at an interest rate equal to the project’s IRR. Question 91 - CMA 1293 4.14 - Capital Budgeting Process A depreciation tax shield is A. A reduction in income taxes. B. The cash provided by recording depreciation. C. An after-tax cash outflow. D. The expense caused by depreciation. Question 92 - ICMA 10.P2.284 - Capital Budgeting Process Which one of the following items is least likely to directly impact an equipment replacement capital expenditure decision? A. The depreciation rate that will be used for tax purposes on the new asset. B. The net present value of the equipment that is being replaced. C. The sales value of the asset that is being replaced. D. The amount of additional accounts receivable that will be generated from increased production and sales. Question 93 - ICMA 10.P2.299 - Capital Budgeting Methods Calvin Inc. is considering the purchase of a new state-of-the-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. Existing New Machine Machine Original cost $50,000 $90,000 Installation cost 0 4,000 Freight and insurance 0 6,000 Expected end salvage value 0 0 Depreciation method straight-line straight-line Expected useful life 10 years 5 years The existing machine has been in service for seven years and could be sold currently for $25,000. If the new machine (c) HOCK international, page 28  Part 2 : Part 2 Special Comprehensive Exam on all topics 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? A. $75,000. B. $65,000. C. $100,000. D. $79,000. Question 94 - ICMA 10.P2.351 - Capital Budgeting Methods Lewis Services is evaluating six investment opportunities (projects). The following table reflects each project's net present value (NPV) and the respective initial investments required. All of these projects are independent. Project NPV Investment R $5,000 $10,000 S 5,000 5,000 T 8,000 40,000 U 15,000 60,000 V 15,000 75,000 W 3,000 15,000 Lewis has an investment constraint of $100,000. Which combination of projects would represent the optimal investment that should be recommended to Lewis Services' management? A. R, V and W. B. T and U. C. R, S, U and W. D. R, S and V. Question 95 - CMA Sample Q4.5 - Risk in Capital Budgeting Mega Inc., a large conglomerate with operating divisions in many industries, uses risk-adjusted discount rates in evaluating capital investment decisions. Consider the following statements concerning Mega's use of risk-adjusted discount rates. I. Mega may accept some investments with internal rates of return less than Mega's overall average cost of capital. II. Discount rates vary depending on the type of investment. III. Mega may reject some investments with internal rates of return greater than the cost of capital. IV. Discount rates may vary depending on the division. Which of the above statements are correct? A. II, III, and IV only. B. II and IV only. C. I, II, III, and IV. D. I and III only. (c) HOCK international, page 29  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 96 - CMA 1293 4.16 - Risk in Capital Budgeting Sensitivity analysis is used in capital budgeting to A. Determine the amount that a variable can change without generating unacceptable results. B. Simulate probabilistic customer reactions to a new product. C. Identify the required market share to make a new product viable and produce acceptable results. D. Estimate a project's internal rate of return. Question 97 - HOCK MP1 C6 - Ethical Considerations for the Organization Company A has a formal corporate code of ethics while company B does not. The code of ethics covers such things as purchase agreements and relationships with vendors as well as many other issues to guide individual behavior within the company. Which of the following statements can be logically inferred? I. Company A exhibits a higher standard of ethical behavior than does company B. II. Company A has established objective criteria by which an employee’s actions can be evaluated. III. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company. A. I and II only. B. II and III only. C. III only. D. II only. Question 98 - ICMA 14.P2.075 - Ethical Considerations for the Organization A company's code of conduct states "Our employees are our most valuable asset." Which one of the following policies best illustrates that management strives to provide leadership by example in ethical matters concerning employees? A. Final terms on all major purchase and sales contracts are negotiated only by management. B. Management and the Board of Directors meet annually at a luxury resort for a strategic planning conference. C. The company relies on supervisors, rather than manuals, to train employees in their responsibiiities. D. Management declines to accept bonuses earned in any year in which no raises are given to employees. Question 99 - HOCK CMA10 P2CRA 01 - Risk Management A major difference between risk in investing and other types of risk is A. risk in investing has the potential for either a positive or negative event, whereas other types of risk have the potential only for a negative event. B. risk in investing has the potential for great losses, whereas other types of risk have the potential for either great losses or great gains. C. other types of risk can be managed with insurance, whereas it is not possible to manage risk in investing. D. risk in investing is operational risk, whereas other types of risk are strategic risks. (c) HOCK international, page 30  Part 2 : Part 2 Special Comprehensive Exam on all topics Question 100 - ICMA 13.P2.054 - Risk Management At the beginning of the year, a portfolio manager who manages a portfolio with a mean annual return of 8% and annual standard deviation of 25% wants to estimate the worst case expected loss at an 80% confidence level. The value of the portfolio today is $5 million. Which method would the portfolio manager use to estimate the probable maximum loss that may be incurred at the end of the year? A. Capital Asset Pricing Model. B. Covariance. C. Value-at-Risk. D. Arbitrage Pricing Theory. (c) HOCK international, page 31