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IMA CMA Part 2: Strategic Financial Management Sample Questions:

1. K Malone is a successful entrepreneur, Currently she is considering investing in a capital protect, which would benefit tourism in North Caroina Because of tourism, the State of North Carolina is willing to lent) her
$150,000 at a rate of 5%. well below the market rate Her estimated net cash flows for the 3-year lifetime of the project are S15 000 $89,000 and $60,000 respectively Recommend whether or not Malone should undertake this project.

A) She should undertake this project because the present value (PV) of this project is $146,843
B) She should not undertake this protect because the net present value (NPV) is ($3.157)
C) She should undertake this project because the net present value (NPV) is $31,022.
D) She should not undertake this project because the net present value NPV is ($14.051).


2. London Corporation has in the following cost structure for two of its product.

Assume that me current sales level is 15,000 units of Product A and 5,000 units of Product B Using cost-volume-profit analysis which of the following courses of action would maximize profit in the short term?
Assume that fixed costs are sunk costs in the short term.

A) Continue to make and sell both Product A and Product B
B) Continue to make and sell Product B only
C) Continue to make and sell Product A only.
D) Discontinue making and selling Doth products


3. Willcox Company plans to sell 100 000 units of Us only product for $300 per unit to its existing customers It has received a new customer request for 10,000 units at a selling price of $2S0 per unit Willcox's cost structure is shown below.

Capacity exists lo produce an additional 10 000 units and accepting the order would have no long-term implications If the order is accepted however a specialized piece of equipment costing S25 000 would need to I purchased If Wilcox accepts the special order its income would increase by

A) $1400, 000.00
B) $375,000.00
C) $1,375,000.00
D) $75,000.00


4. Company A is concerned with its debt status and interested in analyzing how each one of the following activities might affect its to equity ratio. Assuming each activity is independent, which one of following activities is

A) Creating a separate entity to purchase a needed machine and leasing it from this entity.
B) Changing its inventory method from LIFO to weighted average.
C) Acquiring a subsidiary and consolidating for year-end financial statements.
D) Purchase back some of its common stock during the year.


5. As the number of stocks in a portfolio increases, unsystematic risk

A) decreases and systematic risk decreases
B) increases, and systematic risk increases
C) decreases and systematic risk does not change
D) increases, and systematic risk does not change


Solutions:

Question # 1
Answer: D
Question # 2
Answer: C
Question # 3
Answer: C
Question # 4
Answer: C
Question # 5
Answer: C

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