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IMA CMA Part 2: Strategic Financial Management Sample Questions:
1. Calculate QDDs financial leverage ratio show your calculations
Essay
Quality Digital Design (QDD) Inc is a public-traded technology company Selected financial data of QDD for the prior year are as follows
QDD's stock was trading at $160 per share at the beginning of the yea: and at $176 per share by the end of the year. The company paid dividends of S5 per share. The company "s stock had a beta of 1 4 The stock market provided a total return of 12% last year, well above the 3% risk free rate of return QDD is considering the issuance of $200 million of bonds to fund the repurchase of $200 million of its stock.
QDD is evaluating the bond, including its term structure, maturity, and whether it should be callable obtaining the lowest coupon interest is an important objective of QDD. The CFO has estimated that sales for the current year would remain the same as last year and the new bond would add S12 million in annual interest payments
2. To minimize me risk of a two-stock portfolio, a company should most likely purchase stocks that have
A) no correlated expected returns
B) negatively correlated expected returns
C) positively correlated expected returns
D) equally correlated expected returns
3. Plenary Inc specializes in overnight package delivery. Total packages delivered last year were 10 000.000. and this quantity is expected to remain unchanged in the coming year. Unit contribution margin is $4,50 and total fixed costs are S40.000,000. The firm's 300 delivery truck drivers are seeking a S10 000 raise in annual salary In addition to a current base salary of $45 000 per year, the drivers receive a commission of $0 50 per package delivered If the firm grants the $10,000 salary increase to each driver and seeks to maintain the same level of pre-tax operating profit what is the maximum amount of commission the firm can pay its drivers per package delivered?
A) $0.0
B) $0.20
C) $0.30
D) $0.35
4. Studler's Restaurant is considering a contract to supply the weal senior citizen center with 10,000 meals.
Regular sales at regular prices would be unaffected. The food cost for each meal s S3 Additional costs incurred as a result of the contract would De variable overhead of S 50 and variable selling general and administrative costs of S SO per meal sold. The selling price per meal would be $5, A total of $20,000 in fixed costs would be allocated at $2 per meal. The fixed costs are part of an overall total of $500,000 in annual fixed costs incurred regardless of the contract. What will be the effect on pretax income if Studiers takes the special order?
A) $10.000 decrease
B) $20, 000 increase
C) $20.000 decrease
D) $10, 000 increase
5. A manufacturing company is reviewing the budget for one of its component parts for next year based on the need for 5.000 units.
The company receives a bid from a supplier offering lo provide (lie needed component for a price of $115 per unit The company is deciding whether to make or buy the component What decision should the firm make if (1) the fixed facilities costs can be avoided or (2) if the fixed facilities costs cannot be avoided If purchasing from the supplier?
A) (1) Make; (2) Buy
B) (1) Buy; (2) Make
C) (1) Make; (2) Make
D) (1) Buy; (2) Buy
Solutions:
Question # 1 Answer: Only visible for members | Question # 2 Answer: B | Question # 3 Answer: B | Question # 4 Answer: D | Question # 5 Answer: C |
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