CMA Exam Practice Questions — for the New Exam!

To provide candidates with a brief view of some of the types of questions on the CMA^® (Certified Management Accountant) exam, below are five practice questions, with correct answers and explanations for each. These questions reflect content from the new exam, which will be offered for the first time in September 2024.

You can also check out these additional practice multiple-choice and essay questions (in PDF format) and try the interactive practice quiz, available on the IMA^® (Institute of Management Accountants) website, to test your skills and expertise.

CMA Exam Part 1:

1.   How much voting stock of Company X does an investment company need to own to be eligible for the use of equity consolidation in preparing its financial statements under U.S. GAAP?

1. 15%.
2. 25%.
3. 75%.
4. 100%.

• Correct answer b. Equity consolidation is required under U.S. GAAP when an investor exercises “significant influence” over an investee but does not “control” the investee. This is operationalized as owning more than 20% but less than 50% of the investee's voting stock.

2.    A management accountant at a digital media company is aiming to develop a model to anticipate a key business outcome. Which one of the following scenarios would be most appropriate for application of a logistic regression model?

1. Predicting the continuous revenue for the next quarter.
2. Predicting whether a customer will renew their subscription.
3. Forecasting the stock prices for the next year.
4. Forecasting the number of new student subscribers in the coming month.

• Correct answer b. Logistic regression is best suited for binary classification problems, where the outcome (dependent) variable has two possible categories. In this scenario, predicting whether a customer will renew their subscription (yes or no) is a binary outcome, making logistic regression a suitable modeling approach.

3.    What is the primary difference between data management and data governance?

1. Data management handles technical aspects, whereas data governance sets policies.
2. Data management involves data storage, whereas data governance deals with usage.
3. Data management markets data, whereas data governance manages costs.
4. Data management creates data, whereas data governance handles deletion.

• Correct answer a. Data governance is the control of enterprise data through formal policies and procedures to help ensure data can be trusted and are accessible. Data management is the management of the flow of data from creation and initial storage to the time when the data become obsolete and are deleted.

CMA Exam Part 2:

4.    A company is evaluating a project with the following expected cash flows.

If the company’s cost of capital is 10%, what is the project’s profitability index?

1. 1.27.
2. 1.60.
3. 1.86.
4. 2.50.

• Correct answer a. A project’s profitability index is defined as the present value of the project’s future cash flows divided by its initial investment. The present value factor for an annuity with four payments and a discount rate of 10% is 3.1699. This means the present value of the project’s future cash flow is $12,680 ($4,000 x 3.1699). With an initial investment of $10,000, the project’s profitability index is 1.27 ($12,680 / $10,000).

5.    Which of the following is a disadvantage of using debt financing versus equity financing?

1. Debt financing can dilute current owners’ ownership percentage.
2. Debt financing usually has a lower cost of capital than equity financing.
3. Debt financing usually has higher underwriting costs than equity financing.
4. Debt financing can result in restrictive covenants.

• Correct answer d. When a company uses debt financing, the lender can mandate covenants such as a prohibition on issuing new debt without its permission, a requirement that the borrower keep a minimum current ratio, or a requirement that the borrower not pay dividends over a certain amount. These covenants restrict the borrower’s ability to make decisions and operate the business. Equity financing does not have these restrictions.