Financial Certified Management Accountant CMA Exam Questions in PDF

Free Financial CMA Dumps Questions (page: 15)


Details: Ranking Investment Projects 19

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




Details: Ranking Investment Projects 19

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




Details: Ranking Investment Projects 19

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%).




Details: Ranking Investment Projects 19

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




Details: Ranking Investment Projects 19

Pena Company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years. What is the PR of the project?

  1. 6%
  2. 7%
  3. 8%
  4. 9%

Answer(s): D

Explanation:



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