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Free CMA Exam Braindumps (page: 124)

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In the decision making process, differential cost is a (n)

  1. Sunk cost of alternative courses of action.
  2. Fixed cost of alternative courses of action.
  3. Opportunity cost of alternative courses of action.
  4. Cost that changes among alternative courses of action.

Answer(s): D

Explanation:

A differential cost is one that changes among alternative courses of action.



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Which one of the following provides a spontaneous source of financing for a firm?

  1. Accounts payable
  2. Mortgage bonds
  3. Accounts receivable.
  4. Debentures.

Answer(s): A

Explanation:

Trade credit is a spontaneous source of financing because it arises automatically as part of a purchase transaction. Because of its ease in use, trade credit is the largest source of short-term financing for many firms both large and small



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Assuming a 360-day year, the current price of a $100 U.S. Treasury bill due in 180 days on a 6% discount basis is

  1. $97.00
  2. $94.00
  3. $100.00
  4. $93.00

Answer(s): A

Explanation:

The 6% discount rate is multiplied times the face amount of the Treasury bill to determine the amount of interest the lender will earn. The interest on this Treasury bill is $3 ($100 x 6% x 5 year), thus the purchase price is $97 ($100--$3).



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Which of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?

  1. This market provides more funds at lower rates than other methods provide
  2. The borrower avoids the expense of maintaining a compensating balance with a commercial bank.
  3. There are no restrictions as to the type of corporation that can enter into this market.
  4. This market provides a broad distribution for borrowing.

Answer(s): C

Explanation:

Commercial paper is a short-term, unsecured note payable issued in large denominations by major companies with excellent credit ratings. Maturities usually do not exceed 270 days. Commercial paper is a lower cost source of funds than bank loans, and no compensating balance are required. Commercial paper provides a broad and efficient distribution of debt, and costly financing arrangements are avoided. The market is not open to all companies because only major corporations with high credit ratings can participate.






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