CMA Exam Questions & Answers

The Delphi technique is used in identifying alternative courses of action. It is an approach in which the manager solicits opinions on a problem from experts in the field, summarizes the opinions, and feeds the summaries back to the experts.

The marketing organization should be able to implement the marketing plan. The following are types of marketing organizations: sales department only, sale department with some marketing functions, such as advertising and research, marketing department separate from sales; marketing and sales departments reporting to a vice-president of marketing and sales, the same, except that everyone is customer- and market-centered, and process and outcome organizations, with departments replaced by cross-disciplinary teams managed by process leaders.

Earnings per share will ordinarily be higher if debt is used to raise capital instead of equity, provided that the firm is not over-leveraged. The reason is that the cost of debt is lower than the cost of equity because interest is tax deductible. However, the prospect of higher EPS is accompanied by greater risk to the firm resulting from required interest costs, creditors' liens on the firm's assets, and the possibility of a proportionately lower EPS if sales volume fails to meet projections.

Carlisle Company currently sells 400,000 bottles of perfume each year. Each bottle costs $84 to produce and sells for $1 .00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000, preferred stock dividends of $2,000 per year, and a 40% tax rate. Carlisle uses the following formulas to determine the company's leverage:

Where: Q = Quantity

FC = Fixed cost

VC = Variable cost

S = Selling price

= Interest expense

P = Preferred dividends

T = Tax rate

EBIT = Earnings before interest and taxes

A certificate of deposit (CD) is a form of savings deposit that cannot be withdrawn before maturely without incurring a high penalty. A negotiable CD can be traded. CDs usually have a fairly high rate of return compared with other savings instruments because they are for fixed, usually long-term periods. However, their yield is 1less than that of commercial paper and bankers' acceptances because they are less risky.

The IRR is the interest rate at which the present value of the expected future cash inflows is equal to the present value of the cash outflows for a project. Thus1 the IRR is the interest rate that will produce a net present value (NPV) equal to zero. The IRR method assumes that the cash flows will be reinvested at the internal rate of return.