IMANET CMA Practice Test : Free Online Preparation

Free IMANET CMA Exam Questions

The following data pertain to a 4-year project being considered by Metro Industries:

• A depreciable asset that costs $1,200,000 will be acquired on January 1 . The asset, which is

expected to have a $200,000 salvage value at the end of 4 years, qualifies as 3- year property under

the Modified Accelerated Cost Recovery System (MACPS).

• The new asset will replace an existing asset that has a tax basis of $150,000 and can be sold on the

same January 1 for $180,000.

• The project is expected to provide added annual sales of 30,000 units at $20. Additional cash

operating costs are: variable, $12 per unit fixed, $90,000 per year.

• A $50,000 working capital investment that is fully recoverable at the end of the fourth year is

required. Metro is subject to a 40% income tax rate and rounds all computations to the nearest

dollar. Assume that any gain or loss affects the taxes paid at the end of the year in which it occurred.

The company uses the net present value method to analyze investments and will employ the

following factors and rates.

The expected incremental sales will provide a discounted, net-of-tax contribution margin over 4

years of

Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating data

for the period just ended.

Management plans to improve the quality of its sole product by (1) replacing a component that costs

$3.50 with a higher-grade unit that costs $5.50, and (2) acquiring a $180,000 packing machine. Austin

will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line

method of depreciation. If the company wants to earn after-tax income of $172,800 in the upcoming

period, it must sell