IMA CMA-Strategic-Financial-Management Exam Questions : CMA Part 2: Strategic Financial Management Exam

Essentials inc. operates two segments. Segment A and Segment B information about the revenues and costs for Essentials tot the previous year (by segment) is shown below The above analysis shows that Segment A is not profitable if Segment A is dropped, the revenues associated with the account will be lost and the related variable costs win be eliminated Also, the space freed by this product line will be rented for $40.000. The operating profit (loss) after dropping Segment A will be

• A. ($35,000)
• B. $50.000
• C. $90.000
• D. $5,000

Identify and explain the type of acquisition that would occur if Guda acquires Blue Moon.
Essay
Food Depot Ltd, (FDL) is a privately-held company that provides catering services to airlines and operates several restaurant chains including fast food, casual dining, and fine dining restaurants, FDL has been profitable in recent years and has a very strong cash position. FDL's newest division. Food_TO-Go is an online meal ordering and delivery platform acquired by FDL two year ago.
In 20X7, sales for the entire company were $1 billion, with 50% of the business coming from the Airline Catering division. FDL is the country 's leading airline catering services provider and control 60% of the market share. However, the outlook of the airline catering industry is gloomy. The compound annual growth rate of the industry for the past five years was only 0.5% as airline networks have increasingly dropped catering on short domestic flights.
The Food-To-division only contribution 5% of FDL's total sales in 20X7 and is far behind in competing for marketing for market share of the online meal ordering and delivery industry, it is estimated that Food-To-Go's sales were only 20% of the industry leader's sales. However, the outlook for the online meal ordering and delivery services industry is bright. The compound annual growth rate of the industry since it started three years ago was 50%. It is estimated the rapid growth of the industry will continue in the foreseeable future.
Susan Willey, the head of Food-To-Go, does not agree that the Airline Catering division is the best-performing division in the company. Wiley argues that ber division bad the highest ROI in 20X7, and it deserves more capital finding. FDL's requested rate of return is 12%. The selected financial data for the Airline Catering division and Food-To-Go division in 20X7 are as follow (in $ millions)

See the explanation for the answer.
Explanation
The type of acquisition will be of a conglomerate as both of them are working in different industries. Guda is working in media industry where as blue moon is in real estate industry)

Which one of the following statements with respect to ethics is correct?

• A. Ethics and laws are not closely related
• B. Good ethics stems from formal education
• C. One may act legally and still be acting unethically
• D. Every organization that follows the law is ethical

Explain now QDD's share repurchase plan would affect each of the following measures EPS, the degree of operating leverage, and the interest coverage ratio No calculations required 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

See the explanation for the answer.
Explanation
The share repurchase program will reduce the weighted average number of shares outstanding which is turn will increase the earning per share as the same income will be divided over a fewer number of shares It has no impact on the operating leverage and me .Merest cover ratio as it has nothing to do with cost and interest expense (therefore profitability) its an equity based transaction only

A manufacturing company is reviewing the budget for one of its component parts for next year based on the need for 5.000 units.

The company receives a bid from a supplier offering lo provide (lie needed component for a price of $115 per unit The company is deciding whether to make or buy the component What decision should the firm make if (1) the fixed facilities costs can be avoided or (2) if the fixed facilities costs cannot be avoided If purchasing from the supplier?

• A. (1) Buy; (2) Buy
• B. (1) Buy; (2) Make
• C. (1) Make; (2) Buy
• D. (1) Make; (2) Make