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IMANET Exam CMA Topic 2 Question 83 Discussion

Actual exam question for IMANET's CMA exam
Question #: 83
Topic #: 2
[All CMA Questions]

The Hopkins Company has estimated that a proposed project's 10-year annual net cash benefit, received each year end. will be $2,500 with an additional terminal benefit of $5,000 at the end of the 10th year. Assuming that these cash inflows satisfy exactly Hopkins' required rate of return of 8%, calculate the initial cash outlay

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Suggested Answer: B

If the 8% return exactly equals the present value of the future flows ., NPV is zero), then simply determine the present value of the future inflows. Thus, Hopkins Company's initial cash outlay is $19,090 [($2,500)(PVIFA at 8% for 10 periods) + ($5J00)(PVlF at 8% for 10 periods ($2,500)(6.710) + ($5,000)(.463)].


by Alline at Mar 21, 2024, 12:57 PM

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Dalene
10 months ago
Based on my calculations, I think the correct answer is B) $19,090 because it takes into account the cash inflows and required rate of return.
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Sunshine
10 months ago
I believe the initial cash outlay can be determined using the formula for present value of an annuity and present value of a single sum.
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Arleen
10 months ago
I agree with you, Lennie. The required rate of return of 8% is important to consider in this calculation.
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Lennie
11 months ago
I think the initial cash outlay should be calculated based on the net cash benefit and terminal benefit.
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