CFA Level 1 Practice Mock Exam Corporate Finance part 1 #Finance

question one a company’s 100 par value preferred stock with a dividend rate of 9.5 per year is currently priced at 103.26 per share the company’s earnings are expected to grow at an annual rate of 5 for the foreseeable future the cost of the company’s preferred stock is

closest to cost of preferred stock equals dividend divided by price 100 times point zero nine five divided divided by 103.26 equals 9.2 percent the answer is a question two we have an Income statement with all these items the degree of operating leverage is closest to dol degrade

of operating leverage equals Revenues minus variable operating cost divided by Revenue minus variable operating costs minus fixed operating cost and we put in the numbers and get 9.8 minus seven point two divided by nine point eight minus seven point two minus 1.5

and we get 2.36 so the degree of operating leverage is 2.3 the answer is b question 3 a 20 year 1 000 fixed rate non-codable bond with with 8 annual coupons currently sells for 1.05.94 assuming a 30 marginal tax rate and an additional risk premium for Equity relative to

Debt of 5 the cost of Equity using the bond Yield plus risk premium approach is closest to first determining the Yield to maturity which is the discount rate that sets the bond price to 1105.94 dollars and is equal to 7 this

calculation can be done with a financial calculator fv equals minus one thousand dollars pv equals 1105.94 dollars n equals 20 pmt equals minus 80 dollars and we solve for i which will equal seven percent the bond Yield plus risk premium approach is calculated by adding a risk

premium to the cost of Debt ie the Yield to maturity for the Debt making the cost of Equity 12 the answer is c question four which of the following is most likely considered an example of matrix pricing when determining the cost of

Debt a Debt rating approach only b Yields to maturity approach only c both the Yield to maturity and the Debt rating approaches the Debt rating approach is an example of matrix pricing the answer

is a question five a company’s data are provided in the following table we have cost of Debt cost of Equity Debt to Equity ratio tax rate the weighted average cost of Capital is closest to converts the de

ratio to determine the weight of Debt and Equity as follows weight weight of that equals the ratio divided by 1 plus the ratio we put in the numbers and get fifty percent divided by one plus fifty percent equals thirty three point three percent weight of

Equity equals one minus weight of Debt equals 66.7 percent whack equals weight of Debt times cost of that times 1 minus tax rate plus weight of preferred stocks times cost of preferred stocks plus waste weight rate of Equity times

cost of Equity and we substitute in all the numbers and get 13 answer is a question 6 which action is most likely considered a secondary source of Liquidity a renegotiating current Debt contracts to lower interest payments be increasing the

efficiency of Cash Flow management c increasing the availability of bank lines of Credit renegotiating Debt contract is a secondary source of Liquidity because it may affect the company’s operating and financial positions the

answer is a question 7 the following information is available for firm the firm’s degree of total leverage is closest to so total degree of total leverage equals Revenue minus variable cost divided by net Income from the question we know the

Revenue is eight hundred thousand variable cost is four hundred thousand and net Income is 140 thousand we put in all these numbers and get degree of total leverage of 2.8 the answer is b question 8 business risk most likely incorporates operating risk and a

interest rate risk b sales risk c financial risk business risk is the combination of sales risk and operating risk the answer is b