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Free CMA Exam Braindumps (page: 48)

Page 48 of 336
PDF with 1336 Questions
View Related Case Study

ABD Really manages five apartment complexes in a three-state area. Summary income statements for each apartment complex are shown as follows:


Included in the expenses is $1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is (are)

  1. Apartment complexes Two, Three, Pour, and Five.
  2. Apartment complexes Three, Pour, and Five.
  3. Apartment complexes Pour and Five.
  4. Apartment complex Four.

Answer(s): C

Explanation:

The amount of corporate overhead allocated to each complex is calculated below.


After eliminating the allocated costs from the income statement, Four and Five still have losses.



View Related Case Study

Following are the operating results of the two segments of Parklin Corporation.


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(n)

  1. Increase of $500.
  2. Increase of $2,000.
  3. Decrease of $2,000.
  4. Decrease of $2500.

Answer(s): C

Explanation:

The effect of closing Segment B on Parklin's operating income can be calculated as follows:



View Related Case Study

McCann Company can manufacture one of two special orders with their existing capacity. Special Order A is for 100,000 units and Special Order B is for 200,000 units.
Cost and revenue data per unit are as follows:


Based on the above information, which one of the following statements correctly identifies the effect on pretax profit if the optimal decision is made?

  1. $200 increase if Special Order A is taken.
  2. $9,200 increase if Special Order A is taken.
  3. $13,430 increase if Special Order A is taken.
  4. $8,040 increase if Special Order B is taken.

Answer(s): B

Explanation:

The effect on pretax profit of producing the two special orders can be calculated as follows:



View Related Case Study

For capital budgeting purposes, management would select a high hurdle rate of return for certain projects because management

  1. Wants to use equity funding exclusively.
  2. Believes too many proposals are being rejected.
  3. Believes bank loans are riskier than capital investments.
  4. Wants to factor risk into its consideration of projects.

Answer(s): D

Explanation:

Risk analysis attempts to measure the likelihood of the variability of future returns from the proposed investment. Risk can be incorporated into capital budgeting decisions in a number of ways, one of which is to use a hurdle rate (desired rate of return) higher than the firm's cost of capital, that is, a risk-adjusted discount rate. This technique adjusts the interest rate used for discounting upward as an investment becomes riskier. The expected flow from the investment must be relatively larger or the increased discount rate will generate a negative net present value, and the proposed acquisition will be rejected.



Page 48 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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INDIA
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Georgodino commented on April 29, 2021
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Amer Alnajjar commented on March 11, 2019
Still the test is under process
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