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IMA CMA Part 2: Strategic Financial Management Sample Questions:
1. L&H Sports owns and operates several stadiums used for baseball and soccer games Management is considering installing machines that would be used to roast peanuts on the premises. This equipment would allow L&H to sell freshly roasted peanuts rather than the pre-roasted peanuts that are currently sold Marketing studies suggest that this feature would increase peanut sales.
The roasters can be purchased in several sizes, and the annual rental fees and operating costs vary with the size of the roaster Information about the roasters is shown below.
L&H currently sells pre-roasted peanuts for $0 60 pet bag. Management plans to sell the freshly roasted peanuts for a higher price but at no more than a 10% increase. The demand for freshly roasted peanuts is estimated to be 250, 000 bags pet year. Which roaster should L&H purchase to maximize its profit?
A) Economy
B) Regular
C) Super
2. The production process of a company s main product yields a by-product Production costs or $700,000 are incurred during this process and $300,000 m additional costs are incurred to finalize the main product. The by-product can be sold for $200 000 without further processing A manager proposed the conversion of the by-product into another product that would cost $100,000 and generate revenue of $250,000. When deciding on this proposal the company should
A) evaluate whether other nonfinancial factors outweigh the Si 50.000 in incremental income
B) treat the $100,000 conversion cost as the marginal cost 1o produce the new product
C) ignore the $200 000 sales revenue for the by-product because it Is irrelevant
D) select an approbate cost allocation method to allocate the $1 100 000 joint costs
3. SSA inc. issues 4% bonds with a lace value of $500,000 when the market rate of interest is 3% for similar bonds. The bonds mature in 10 years, and pay interest every six months. Which one of the following is closest to the amount of cash SSA will receive upon issued.
A) $543,000
B) $459,000
C) $505,000
D) $500,000
4. Which one of the following statements regarding portfolio diversification is not correct?
A) A well diversified portfolio can eliminate systematic risk.
B) A well diversified portfolio can minimize unsystematic risk
C) The standard deviation of a well diversified portfolio's percentage returns should be approximately equal to the standard deviation of the entire stock market's percentage returns.
D) A well diversified portfolio should include individual stock investments having a balance of positive and negative betas.
5. Radal inc. currently has three product lines: stationery computer supplies, and printer cartridges Based on the following information, the company is considering whether to drop the printer cartridge line.
A) continue the printer cartridge product line to avoid an additional $3.000 decrease in net income
B) drop the printer cartridge product line as this will result in a $3 000 increase m net income
C) drop the printer cartridge product line as this will result in a $6,000 increase m net income
D) continue the printer cartridge product line to avoid an additional $6.000 decrease in net income
Solutions:
Question # 1 Answer: B | Question # 2 Answer: B | Question # 3 Answer: A | Question # 4 Answer: A | Question # 5 Answer: A |

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