Changed CMA-Strategic-Financial-Management Exam Questions

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Question 16

LMN Ltd, a British firm, has a financial covenant with its bank mat interest coverage based on earnings before interest taxes, depreciation, and amortization (EBITDA), must be at least 2.5 for each quarter Shown below are summary financial data.

An expected decline m sales will result In net Income of £ 1.500.000 The other elements of EBITDA will be similar to the most recently completed Quarter Given the above information, what is the ratio for the latest completed quarter and do the forecasted results meet the required covenant?

Options:

1.31. and will not be compliant in the next quarter

2.50. and will not be compliant in the next quartet

2.59. and will be compliant in the next quarter

2.69 and will not be compliant in the next quarter

Question 17

Which one of the following situations describes a secondary offering of stock by a company?

Options:

The company has an initial public offering of its stock and its investment bank needs to add mote shares to the initial public offering to meet excess demand by investors

After the lockup period of the initial public offering ends, the company 3 founders sell some of their shares to the public

The company repurchases shares of its stock in the open market, but it then later sells these shares in the open market

After completing its initial public offering, the company sells more new shares of its stock

Question 18

Studler’s Restaurant is considering a contract to supply the weal senior citizen center with 10,000 meals. Regular sales at regular prices would be unaffected. The food cost for each meal s S3 Additional costs incurred as a result of the contract would De variable overhead of S 50 and variable selling general and administrative costs of S SO per meal sold. The selling price per meal would be $5, A total of $20,000 in fixed costs would be allocated at $2 per meal. The fixed costs are part of an overall total of $500,000 in annual fixed costs incurred regardless of the contract. What will be the effect on pretax income if Studiers takes the special order?