IMA CMA Part 2: Strategic Financial Management Sample Questions:

1. Explain one reason each Tot and against issuing bonds with a call feature Essay Quality Digital Design (QDD) Inc is a public-traded technology company Selected financial data of QDD for the prior year are as follows

QDD's stock was trading at $160 per share at the beginning of the yea: and at $176 per share by the end of the year. The company paid dividends of S5 per share. The company "s stock had a beta of 1 4 The stock market provided a total return of 12% last year, well above the 3% risk free rate of return QDD is considering the issuance of $200 million of bonds to fund the repurchase of $200 million of its stock.
QDD is evaluating the bond, including its term structure, maturity, and whether it should be callable obtaining the lowest coupon interest is an important objective of QDD. The CFO has estimated that sales for the current year would remain the same as last year and the new bond would add S12 million in annual interest payments

2. Which one or the following costs Is a variable product cost?

A) Plant manager s salary for a computer chip manufacturer
B) Payroll taxes based on the hourly wages of plant personnel
C) Office rent in a temporary staffing company
D) Promotional materials distributed to raise brand awareness

3. Which one of the following would best ensure the effectiveness of an organization s code of conduct?

A) Incorporate ethics training for all new employees as a standard part of the orientation process
B) Hold periodic employee workshops that illustrate expected behaviors in business situations in which ethical issues may arise
C) Require executives and managers to take individual responsibility for practicing ethical behavior
D) Distribute the document internally to staff and externally to suppliers and distributors to increase awareness of ethics considerations

4. Mow many student enrolments per year ate required for the new busmen English course to break, even at its current price? Snow your calculations Essay Online Learning Inc. lOLI) is a privately-held company based in the IUC that specializes in providing online courses in English as a Second Language (ESL). OLI is trying to set up a new sales office in a foreign country.
It needs a business license to operate in that country. The license normally lakes six months to obtain. An official of that country said that he could expedite the process for a fee of €300.
OLI estimates the new sales office can bring €300,000 incremental profit annually OLI has just launched a new online 40-houi course to help adult ESL learners master basic business English. The price of the new course is €500 per student, the variable cost is €300 per student, and the total fixed cost of the new course is
€300.000 per year OLI spent €200.000 to develop the new course before launching it. There are many online course providers in the marketplace, and each has its own feature However, OLI's highly qualified staff and good reputation have enabled it to charge a premium price compared to its major competitors. Recent market research indicates that if OLI raises the price of its new business English course by 10V the student enrollment would decrease by 5V A regional airlines company in Asia has approached OLI and offered to enroll 1.000 of its employees in the new course if OLI would agree to a special price of €350 per employee If OLI accepts this offer, an additional €10,000 onetime cost would be required to temporally expand its capacity to accommodate the new students.

5. LMN Ltd, a British firm, has a financial covenant with its bank mat interest coverage based on earnings before interest taxes, depreciation, and amortization (EBITDA), must be at least 2.5 for each quarter Shown below are summary financial data.

An expected decline m sales will result In net Income of £ 1.500.000 The other elements of EBITDA will be similar to the most recently completed Quarter Given the above information, what is the ratio for the latest completed quarter and do the forecasted results meet the required covenant?

A) 2.69 and will not be compliant in the next quarter
B) 2.50. and will not be compliant in the next quartet
C) 1.31. and will not be compliant in the next quarter
D) 2.59. and will be compliant in the next quarter

Solutions: