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Free CMA Exam Braindumps (page: 192)

Page 192 of 336
PDF with 1336 Questions
View Related Case Study

The Herb Salter Corporation is considering a plant expansion that will increase its sales and net income. The following data represent management's estimate of the impact the proposal will have on the company:

The effect of the plant expansion on Salter's networking capital will be a (n)

  1. Increase of $240,000
  2. Decrease of $10,000
  3. Increase of $230,000
  4. Increase of $10,000

Answer(s): B

Explanation:

Net working capital is defined as current assets minus current liabilities; Net working capital is calculated as follows:

Networking capital decreases by $10,000 from the current $540,000 to $530,000 under the proposal.



View Related Case Study

Yonder Motors sells 20,000 automobiles per year for $25,000 each. The firm's average receivables are $30,000,000 and average inventory is $40,000,000. Yoder's average collection period is closest to which one of the following? Assume a 365-day year.

  1. 17 days.
  2. 22 days.
    0. 29 days.
  3. 61 days.

Answer(s): B

Explanation:

The average collection period, also called the days sales outstanding in receivables, is calculated as the number of days in the year over the receivables turnover ratio. Yoder's can be thus calculated as follows:



View Related Case Study

The amount Morton Company must borrow to pay the supplier within the discount period and cover the compensating balance is

  1. $55,000.
  2. $55,056.
  3. $55,556.
  4. $54,444.

Answer(s): D

Explanation:

The company will need $49,000 (98% x $501000) to pay off the invoice. In addition, it will need a compensating balance equal to 10% of the loan. This can be written in equation form as:
Loan $49,000 + (.1) Loan.
Thus, the loan amount needed is $54,444 ($49,000 · .9).



View Related Case Study

Assuming Morton Company borrows the money on the last day of the discount period and repays it 30 days later, the effective interest rate on the loan is

  1. 12.00%.
  2. 13.33%.
  3. 13.20%.
  4. 1348%.

Answer(s): B

Explanation:

The company will need $49,000 (98% x $50,000) to pay off the invoice. In addition, it will need a compensating balance equal to 10% of the loan. Thus, the loan amount needed is $54,444 ($49,000 ÷ .9). The interest at 12% annually on a 30-day loan of $54,444 is $544.44 ($54,444 x 12% x 30 ÷ 360). However, the company has access to only $49,000. Thus, the interest expense on usable funds is at an annual rate of 13.33% (12 months x $544.44÷$49,000).



Page 192 of 336



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