IMA CMA Part 2: Strategic Financial Management - CMA-Strategic-Financial-Management Exam Questions
QUESTION NO: 1
Company Y records a receivable from a foreign customer in Company Y's functional currency. The receivable is due in 90 days and is to be paid in the customer s currency. This is an example of which type of risk exposure?
Company Y records a receivable from a foreign customer in Company Y's functional currency. The receivable is due in 90 days and is to be paid in the customer s currency. This is an example of which type of risk exposure?
Correct Answer: C
QUESTION NO: 2
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.
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.
Correct Answer:
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.
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.
QUESTION NO: 3
When evaluating a capital Budgeting proposal, an advantage of using the payback method is that Bits process
When evaluating a capital Budgeting proposal, an advantage of using the payback method is that Bits process
Correct Answer: C
QUESTION NO: 4
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)?
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)?
Correct Answer: D
QUESTION NO: 5
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
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
Correct Answer: C
QUESTION NO: 6
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
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
Correct Answer:
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
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
QUESTION NO: 7
It is possible to eliminate risk in a two-stock portfolio of common stocks if
It is possible to eliminate risk in a two-stock portfolio of common stocks if
Correct Answer: A
QUESTION NO: 8
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
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
Correct Answer: D
