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IMANET Exam CMA Topic 2 Question 96 Discussion

Actual exam question for IMANET's CMA exam
Question #: 96
Topic #: 2
[All CMA Questions]

In smaller businesses in which the management of cash is but one of numerous functions performed by the treasurer. Various cost incentives and diversification arguments suggest that surplus cash should be invested in

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Suggested Answer: D

The estimated incremental after-tax operating cash flows for each year of a capital project consist of two components: the after-tax cash inflows from operations and the depreciation tax shield arising from the purchase of new equipment. The first of these for Pauley can be calculated as follows:

Pauley's total after-tax operating cash inflow for each year of the project's life is thus $36,000 ($30,000 + $6,000). Ii the final year of the project, two additional cash flows must be taken into account, the after-tax proceeds from the disposal of the equipment purchased for the project, and the recovery of working capital devoted to the project. These two additional cash flows can be calculated as follows:

Pauley's total after-tax cash inflow for the final year of the project's life is thus $49,000

($36,000 + $13,000).


Contribute your Thoughts:

Queenie
6 days ago
I prefer investing in commercial paper, it's a safer option for surplus cash.
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Effie
7 days ago
I agree with Aliza, money market mutual funds offer a good return and liquidity.
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Aliza
8 days ago
I think surplus cash should be invested in money market mutual funds.
upvoted 0 times
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