IMANET Exam CMA Topic 5 Question 94 Discussion

Actual exam question for IMANET's CMA exam

Question #: 94
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 Ming at Aug 07, 2024, 03:10 AM

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Kattie

3 months ago

I think the initial cash outlay is $19,090 as well, it makes sense given the cash inflows and required rate of return.

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Jerry

3 months ago

I agree with Mattie, the required rate of return is important in determining the initial cash outlay.

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Margo

3 months ago

Forget the numbers, I'm just here for the terminal benefit. Who doesn't love a good 'terminal' pun?

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Carin

2 months ago

User 2

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Ocie

3 months ago

User 1

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Mattie

3 months ago

I disagree, I believe it is $19,090 because of the required rate of return.

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Dwight

3 months ago

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

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Francesco

3 months ago

Ah, the joys of present value calculations. B) $19,090 is the only sane choice here.

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Adell

3 months ago

D) $30,000? What is this, a charity donation? I'm sticking with the good ol' B.

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Margurite

3 months ago

User 2

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Delsie

3 months ago

User 1

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Afton

4 months ago

This one's a toughie, but I'm leaning towards B. Hopkins better not trick us with this project!

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Gabriele

4 months ago

I agree with Sheldon, the correct answer is A) $16,775 because it takes into account the required rate of return.

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Izetta

4 months ago

Hmm, I'm debating between B and C, but I think B is the way to go. Gotta love these finance questions!

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Sabra

3 months ago

Definitely, B is the best option considering the 8% required rate of return.

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Honey

3 months ago

Yeah, the initial cash outlay should be calculated based on the required rate of return, so B makes sense.

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Lasandra

3 months ago

I agree, the required rate of return is 8% so B seems like the right choice.

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Desire

3 months ago

I think B is the correct answer, it seems to make the most sense.

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Sheldon

4 months ago

But the required rate of return is 8%, so the initial cash outlay should be lower than $19,090.

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Becky

4 months ago

I disagree, I believe the answer is B) $19,090.

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Skye

4 months ago

The answer is clearly B) $19,090. I'm pretty sure I nailed this one!

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Dorathy

3 months ago

I'm not sure, but I think it might be D) $30,000.

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Owen

4 months ago

I'm leaning towards C) $25,000.

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Deonna

4 months ago

No, I believe it's B) $19,090.

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Jerlene

4 months ago

I think the answer is A) $16,775.

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Sheldon

4 months ago

I think the answer is A) $16,775.

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