IMANET Exam CMA Topic 1 Question 103 Discussion

Actual exam question for IMANET's CMA exam

Question #: 103
Topic #: 1

The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to Moore's plant and $9,000 to insall. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,0O0 Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Moore Corporation should use in a capital budgeting analysis?

A$(85,000)

B$(90,000)

C$(96,000)

D$(105,000)

Show Suggested Answer

Suggested Answer: D

Initially, the company must invest $105,000 in the machine. Consisting of the invoice price of $90 00. the delivery costs of $6,000, and the installation costs of $9,000.

by Marge at Nov 16, 2024, 12:07 AM

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Levi

6 days ago

I'm not sure, but it makes sense to deduct the salvage value and consider the tax implications to calculate the net cash outflow.

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Carlota

7 days ago

I agree with Trinidad, because the initial cost of the machine plus installation and transportation costs should be considered as the net cash outflow.

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Trinidad

9 days ago

I think the answer is A) $(85,000)

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Margot

14 days ago

Alright, let's break this down. The initial cost is $105,000, but we need to factor in the salvage value and tax considerations. I'm going with Option A on this one.

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Leonora

16 days ago

Wait, what? Straight-line depreciation over 5 years? That's not the same as the 10-year life of the machine. This is tricky, but I think Option A is the way to go.

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Verlene

23 hours ago

I think Option A is correct because we need to consider the 5-year depreciation period for tax purposes.

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Lawana

23 days ago

Hmm, let's see. The machine costs $90,000, plus $6,000 to transport and $9,000 to install. That's a total of $105,000. Option D seems to be the correct answer here.

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