IMANET Exam CMA Topic 1 Question 95 Discussion

Actual exam question for IMANET's CMA exam

Question #: 95
Topic #: 1

The Dickens Corporation is considering the acquisition of a new machine at a cost of $180,000. Transporting the machine to Dickins' plant will cost $1 2.000. Installing the machine will cost an additional $18,000. It has a 10-year life and is expected to have a salvage value of $10,000. Furthermore, the machine is expected to produce 4.000 units per year with a selling price of $500 and combined direct materials and direct labor costs of $450 per unit. Federal tax regulations permit machines of this ripe to be depreciated using the straight-line method over 5 years with no estimated salvage value. Dickens has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Dickens should use in a capital budgeting analysis?

A$(170,000)

B$(180.000)

C$(192,000)

D$(210,000)

Show Suggested Answer

Suggested Answer: D

Delivery and installation costs are essential to preparing the machine for its intended use. Thus the company must initially pay $2 10.000 for the machine, consisting of the invoice price of $180,000. the delivery costs of $1 2,000, and the $18,000 of installation costs.

by Reid at Aug 24, 2024, 07:47 AM

Limited Time Offer

25%

Off

Get Premium CMA Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Fannie

4 months ago

Ah, the joys of capital budgeting. If only Dickens had a machine that could do the math for them!

upvoted 0 times

Quentin

3 months ago

C) $(192,000)

upvoted 0 times

...

Noble

3 months ago

B) $(180,000)

upvoted 0 times

...

Ramonita

3 months ago

A) $(170,000)

upvoted 0 times

...

Rutha

4 months ago

I think the answer is C) $(192,000) because we need to consider all costs involved in the acquisition

upvoted 0 times

...

Louvenia

4 months ago

This question is making my head hurt. Let's just go with the largest number, D. $210,000 has to be the right answer, right?

upvoted 0 times

Chaya

3 months ago

Yeah, it's always best to double-check before making a decision.

upvoted 0 times

...

Helga

3 months ago

I was also confused at first, but now it makes sense.

upvoted 0 times

...

Eveline

3 months ago

Oh, I see. Thanks for clarifying.

upvoted 0 times

...

Ashton

3 months ago

No, the correct answer is A) $(170,000).

upvoted 0 times

...

Pansy

3 months ago

D) $(210,000)

upvoted 0 times

...

Karma

3 months ago

C) $(192,000)

upvoted 0 times

...

Rueben

3 months ago

B) $(180,000)

upvoted 0 times

...

Holley

4 months ago

A) $(170,000)

upvoted 0 times

...

Nakita

4 months ago

I agree with Arleen, A) $(170,000) makes sense because of the depreciation method used

upvoted 0 times

...

Daren

5 months ago

Hmm, I'm not sure about this one. Let me double-check the numbers. Oh, I see, the straight-line depreciation over 5 years means the net cash outflow is $192,000. So, the answer is C.

upvoted 0 times

Tasia

4 months ago

Yes, you're right. The net cash outflow at the beginning of the first year is $192,000.

upvoted 0 times

...

Geraldine

4 months ago

I think the answer is C) $(192,000).

upvoted 0 times

...

Coletta

5 months ago

I disagree, I believe the correct answer is B) $(180,000)

upvoted 0 times

...

Arleen

5 months ago

I think the answer is A) $(170,000)

upvoted 0 times

...

Farrah

5 months ago

Wait, I'm confused. Shouldn't we subtract the salvage value of $10,000 from the total cost? That would make the answer B, $180,000.

upvoted 0 times

Roselle

4 months ago

Oh, I see now. Thanks for clarifying. It's important to remember to include all costs and salvage values separately in capital budgeting analysis.

upvoted 0 times

...

Janae

4 months ago

So, the correct answer is actually A, $(170,000). We need to consider the total cost of the machine and installation without subtracting the salvage value.

upvoted 0 times

...