IMANET Exam CMA Topic 5 Question 90 Discussion

Actual exam question for IMANET's CMA exam

Question #: 90
Topic #: 5

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

A$16,775

B$19,090

C$25,000

D$30,000

Show Suggested Answer

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 Reiko at Jun 24, 2024, 04:53 AM

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Arlyne

5 months ago

I'm going with B) $19,090 as well. Seems like the most logical choice based on the details in the question.

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5 months ago

Wait, how do we know the cash flows satisfy the 8% rate of return? Shouldn't we be using the present value formula to figure this out?

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Ines

4 months ago

User 2

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Kasandra

5 months ago

User 1

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Reita

6 months ago

I believe it's actually $19,090 because of the required rate of return.

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6 months ago

I think the initial cash outlay is $16,775.

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