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The questions for CMA were last updated on Dec 22, 2024.
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The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; twill cost $6,000 to transport to Moore's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,000. Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore ha a marginal tax rate of 40%. What is the net cash flow for the tenth year of the project that Moore Corporation should use in a capital budgeting analysis?
The company will receive net cash inflows of $50 per unit ($500 selling price --- $450 of variable costs), or a total of $100,000 per year. This amount will be subject to taxation, as will the $5,000 gain on sale of the investment, bringing taxable income to $105,000. No depreciation will be deducted in the tenth year because the asset was fully depreciated after 5 years. Because the asset was fully depreciated (book value was zero), the $5,000 salvage value received would be fully taxable. After income taxes of $42,000 ($105,000 x 40%), the net cash flow in the tenth year is $63,000 ($105,000 ---$42,000).
Which one of the following provides a spontaneous source of financing for a firm?
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
The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)
Transfer prices are often used by profit centers and investment centers. Profit centers are the more fundamental of these two centers because investment centers are responsible not only for revenues and costs but also for invested capital.
Which of the following factors is not typical of an industry that faces intense competitive rivalry?
Rivalry among existing firms will be intense when an industry has many strong competitors. Inelastic demand exists when quantity purchased is not greatly affected by price changes. Thus, price cutting does not increase sales for the industry and is therefore a typical of an intensely competitive industry.
A company has a current ratio of 1 .9 and a quick ratio of .5. Which of the following transactions will increase both ratios?
This question is somewhat tricky because one of the ratios is less than 1.0, while the other is greater than 1.0. If the current ratio is greater than 1.0, then paying off a current liability will increase the ratio. Thus, both answers (A) and (C) will increase the current ratio. However, transferring cash to a creditor will decrease the quick ratio if the present ratio is less than 1.0. Thus, only the transfer of a non-quick asset to a creditor will increase the quick ratio. For example, if the total of current assets was $190,000 and quick assets totaled $50,000, then current liabilities would have been $100,000. Transferring $10,000 of inventory would change the totals to $180,000 for current assets and $90,000 for current liabilities. Quick assets would remain at $50,000. The new current ratio would be 2.0 ($180,000 + $90,000), and the new quick ratio would be .556 ($50,000 + $90,000).
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