2013 CFA Level I CF

Irfanullah.co

Quiz 1 (20 Questions, 37.5 Minutes)

1. An investor is looking to invest in Silver Appliances. It has a beta of 1.2 and is funded 60% with debt. The company recently announced that it would retire all of its debt and become debt-free. The investor is interested in finding out the beta of the firm, assuming that the firm has no debt. If the marginal rate of tax is 40%, the beta of the company without any debt is closest to: A. 0.44 B. 0.63 C. 0.74 2. A 30-day $10,000 U.S. Treasury bill sells for $9,850. The discount-basis yield (%) is closest to: A. 17.5% B. 18% C. 18.25% 3. Which of the following capital budgeting techniques is most directly related to the stock price? A. Payback Period B. Discounted Payback Period C. Net Present Value 4. For a company, the fixed costs are $15,000, interest costs are $5,000 and taxes are $4,000. If the price per unit is $15 and the variable cost per unit is $7, the operating breakeven (in units) is closest to: A. 1,000 B. 1,875 C. 2,500 5. The following information is available for a company: Bonds are priced at par and they have an annual coupon rate of 7% Preferred stock is priced at $15 and it pays an annual dividend of $2.25 Common equity has a beta of 1.5 The risk-free rate is 5% and the market premium is 12%
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2013 CFA Level I CF

Irfanullah.co

Capital structure: Debt = 35%; Preferred stock = 10%; Common equity = 55% The tax rate is 35%

The weighted average cost of capital (WACC) for the company is closest to: A. 15.00% B. 15.74% C. 16.60% 6. Using the firms income statement given below, its degree of financial leverage is closest to: Income Statement Revenues Variable Operating Costs Fixed Operating Costs Operating Income Interest Taxable Income Tax Net Income A. 0.8 B. 1.5 C. 2.25 7. Which of the following is most likely not considered in the capital budgeting process? A. Externalities B. Timing of cash flows C. Sunk Costs 8. Which of the following is most likely not considered an example of matrix pricing? A. Yield to Maturity Approach Only B. Debt-Rating Approach Only C. Both Debt-Rating and Yield To Maturity Approach $ Millions 17 4.5 3.5 9 3 6 2 4

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2013 CFA Level I CF

Irfanullah.co

9. A companys $100 par value preferred stock with a dividend rate of 15% annually is currently priced at $112. The companys growth rate is expected to be 5% annually for the next 7 years. The companys cost of preferred stock is closest to: A. 13.4% B. 14.1% C. 15% 10. A companys taxable income is 20% of sales. Assuming taxes of 35% and a retention ratio of 70%, the net profit margin is closest to: A. 7% B. 13% C. 30% 11. A 30-day $10,000 U.S. Treasury bill sells for $9,950. The money-market yield (%) is closest to: A. 6% B. 6.5% C. 7% 12. A 10-year $1,000 fixed rate non-callable bond with 7% annual coupons currently sells for $1,154. Assuming an additional risk premium for equity relative to debt of 7% and a 35% marginal tax rate, the cost of equity using the bond-yield-plus-risk-premium approach is closest to: A. 9.45% B. 12% C. 14%

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2013 CFA Level I CF

Irfanullah.co

13. A company buys items from its suppliers on credit, with trade credit terms of 3/10 net 40. The company is evaluating the different costs of trade credit for paying the supplier on different days. If the company pays the supplier on the 30th day, the annualized cost of trade credit (%) closest to: A. 74% B. 85% C. 91% 14. Which is least likely to be a component of a developing countrys equity premium? A. Annualized standard deviation of developed market equity index B. Sovereign yield spread C. Annualized standard deviation of the sovereign bond market in terms of the developed market currency 15. A project has the following annual cash flows: Year Cash Flow ($) 0 -23,000 1 15,000 2 8,000 3 7,000

Using a discount rate of 5%, the discounted payback, in years, is closest to: A. 2 years B. 2.24 years C. 2.48 years 16. If a companys stock trades at relatively high prices, the company would least likely consider the use of: A. Stock Dividend B. Reverse Stock Split C. Stock Split

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2013 CFA Level I CF

Irfanullah.co

17. Based on best practices in corporate governance procedures, which of the following is least likely not considered a best practice in corporate governance procedures: A. Have independent board members comprise a minority proportion on the board B. Have separation of the CEO position from the chair position on the board C. Link compensation to long term objectives of the company 18. Which of the following is most likely considered a secondary source of liquidity: A. Working Capital Loans B. Trade Credit from Suppliers C. Liquidation of Assets 19. Business Risk of a company most likely incorporates Sales Risk and A. Financial Risk B. Foreign Exchange Risk C. Operating Risk 20. A project has the following annual cash flows: Year Cash Flow ($) 0 -800 1 200 2 550 3 300

Which discount rate most likely gives a negative net present value? A. 11% B. 13% C. 15%

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2013 CFA Level I CF

Irfanullah.co

21. A companys information is provided below: Current Price Per Share Total Shares Outstanding Book Value Per Share $30 20,000 $20

If the company decides to repurchase $90,000 worth of shares using cash, the book value per share most likely will: A. Decrease B. Increase C. Remain unchanged 22. The following information is available for a firm: Number of shares outstanding Tax rate Cost of debt (pretax) Current stock price Net income 7 million 35% 8% $10.00 $14 million

If the company buys back $21 million worth of shares using debt, the earning per share most likely will: A. Decrease B. Increase C. Remain Unchanged 23. The following cash flows are determined for a project: Year Cash Flow ($) 0 -500 1 50 2 90 3 150 4 350 5 400

If the required rate of return for the project is 10%, the NPV of the project is closest to: A. S180.54 B. $219.69 C. $540

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2013 CFA Level I CF

Irfanullah.co

24. An analyst gathers the following information about a company and the market Current market price per share of common stock Most recent dividend per share paid on common stock Expected dividend payout rate Expected return on equity (ROE) Beta for the common stock Expected return on the market portfolio Risk-free rate of return $79 $11 40% 20% 1.8 10% 6%

The cost of common equity for the company, according to the dividend-discount model approach would be closest to: A. 25.9% B. 23.0% C. 27.6% 25. Given the following financial statement data $ Millions 50,000 35,000 7,000 6,000 8,000 3,000

Credit Sales Cost of Goods Sold Accounts Receivable Inventory Beginning Balance Inventory Ending Balance Accounts Payable The net operating cycle of the company is closest to: A. 73 Days B. 95.3 Days C. 124.1 Days

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