CMA Exam Questions and Answers | Exam-Dumps (Page: 3)

QUESTION: 11 Topic 1: Part 1 Sec One (1 to 46) L1El

Details: Strategic and tactical Planning 1
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The capital budgeting model that is ordinarily considered the best model for long-range decision making is the

Payback model
Accounting rate of return model
Unadjusted rate of return model
Discounted cash flow model

Answer(s): D

Explanation:

The capital budgeting methods that are generally considered the best for long-range decision making are the internal rate of return and net present value methods. These are both discounted cash flow methods

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QUESTION: 12 Topic 1: Part 1 Sec One (1 to 46) L1El

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Effective cost capacity management

Minimizes the value delivered to customers
Maximizes required future investments
Matches the firm's resources with current and future market opportunities
Is limited to eliminating short-term worth

Answer(s): C

Explanation:

According to SMA 4Y, Measuring the Cost of Capacity, maximizing the value created within an organization starts with understanding the nature and capabilities of all of the company's resources. Capacity is defined from several different perspectives. Managing capacity cost starts when a product is first envisioned. It continues through the subsequent disposal of resources downstream. Effective capacity cost management requires supporting effective matching of a firm's resource with current and future market opportunities.

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QUESTION: 13 Topic 1: Part 1 Sec One (1 to 46) L1El

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What is the key strategic issues when a firm is considering capacity expansion?

Forecasting long-term demand
Analyzing the behavior of competitors
Identifying options
Avoiding industry overcapacity

Answer(s): D

Explanation:

Whether to expand capacity is a major strategic decision because of the capital required, the difficulty of forming accurate expectations, and the long time frame of the lead times and the commitment. The key forecasting problems are long-term demand and behavior of competitors. The key strategic issue is avoidance of industry overcapacity. Under capacity in a portable industry trends to be a short-term issue. Profits ordinarily lure additional investors. Overcapacity trends to be a long-term problem because firms are more likely to compete intensely rather than reverse their expansion

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QUESTION: 14 Topic 1: Part 1 Sec One (1 to 46) L1El

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When demand uncertainty is low, firms tend to adopt a strategy of preemptive expansion. The conditions for successful preemption expansion include which of the following?

The firm should avoid market signals that alert competitors to the firm's plans
The expansion should be small relative to the market to minimize risk
Economic of scale should be large relative to demand
The business should be strategically vital to competitors

Answer(s): C

Explanation:

Economics of scale should be large in relation to demand, or the learning-curve effect should give an initial large investor a permanent cost advantage. For example, the preemptive firm may be able to secure too much of the market to allow a subsequent firm to invest at the efficient scale. That is, the residual demand available to be met by the later firm is less than the efficient scale of production. The later firm therefore must choose between intense competition at the efficient scale or a cost disadvantage.

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