IMANET Exam CMA Topic 2 Question 83 Discussion

Actual exam question for IMANET's Certified Management Accountant exam

Question #: 83
Topic #: 2

[All Certified Management Accountant Questions]

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 Alline at Mar 21, 2024, 12:57 PM

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Lennie

2 days ago

I think the initial cash outlay should be calculated based on the net cash benefit and terminal benefit.

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