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Financial CMA Exam
Certified Management Accountant (Page 24 )

Updated On: 1-Feb-2026
Page 24 of 270
PDF with 1336 Questions
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What is the approximate lRP for a project that costs $50,000 and provides cash inflows of$20,000for3years?

  1. 10%
  2. 12%
  3. 22%
  4. 27%

Answer(s): A

Explanation:

The factor to use is 2.5, which is found at a little under 10% on the 3-year line of an annuity table



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Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

  1. NPV = $36,274.
  2. NPV = $20,000.
  3. IRR=14%.
  4. IRR is greater than 10%.

Answer(s): D

Explanation:

The total cash inflows are only $70,000 (5 x $14,000). Thus, whatever the discount rate, the j1NPVwill be less than $20000 ($70,000--$50,000).The return in the first year is $14,000, or28% of the initial investment. Since the same $14,000 flows in each year, the IRR is going to be greater than 10% (actually, it is almost 14%).



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Comp techs is an all-equity firm that is analyzing a potential mass communications project which will require an initial after-tax cash outlay of $100,000, and will produce after-tax cash inflows of $12,000 per year for 10 years. In addition, this project will have an after-tax salvage value of $20,000 at the end of Year 10. If the risk-free rate is 5 percent, the return on an average stock is 10 percent, and the s of this project is 1.80, then what is the project's NPV?

  1. $(14544)
  2. $4,944
  3. $(37,408)
  4. $(32,008)

Answer(s): D

Explanation:

The cost of capital must be determined in order to calculate NPV.Using the Capital Asset Pricing Model to determine the cost of capital where P equals the required rate of return on equally capital, PF equals the risk-free rate, PM equals the market return, and p equals the p coefficient, then



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Dr. G invested $10.000 in a lifetime annuity for his granddaughter Emily. The annuity is expected to yield $400 annually forever. What is the anticipated internal rate of return for the annuity?

  1. Cannot be determined without additional information.
  2. 4.0%
  3. 2.5%
  4. 8.0%

Answer(s): B

Explanation:

The correct answer is 4.0%. $i0000 = $400 ÷IRP; IRR =0040 = 4.0



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The net present value of a proposed investment is negative; therefore, the discount rate used must be

  1. Greater than the project's internal rate of return.
  2. Less than the project's internal rate of return.
  3. Greater than the firm's cost of equity.
  4. Less than the risk-free rate.

Answer(s): A

Explanation:

The higher the discount rate, the lower the NPV). The IRR is the discount rate at which the NPV is zero. Consequently, if the NPV is negative1 the discount rate used must exceed the IRR.



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