Cfa Level 1 Practice Exam 1.2 Questions
And Answers With Verified Solutions
100% Correct!!!
Value chain analysis - ANSWER✔✔specific activities carried out by the firm,
"[v]alue chain analysis provides a link between the firm's value proposition for
customers and its profitability. It involves: 1. identifying the specific activities
carried out by the firm,..."
Long term securities - ANSWER✔✔longer term-securities "are generally more
costly to the firm, but they can provide the firm with increased financial
flexibility."
Commercial Paper - ANSWER✔✔commercial paper is a short-term external
source of financing that often requires companies to have a back-up line of credit
and constantly reissue. In addition, it is only available as a source of financing to
large, well-rated companies.
uncommitted line of credit - ANSWER✔✔"the least reliable form of bank
borrowing" and the bank "reserves the right to refuse to honor any request for use
of the line" of credit.
WACC - ANSWER✔✔WACC = wd×rd × (1 - t) + we×re.
Equity Beta - ANSWER✔✔Beta equity = Asset Beta * (1+(1-tax)*(D/E))
A company's management most likely has the greatest flexibility in managing
which of the following risks? - ANSWER✔✔Financial risk because "[u]nlike
operating leverage, the degree of financial leverage is most often a choice by the
, company's management. Whereas operating costs are very similar among
companies in the same industry, competitors may decide on differing capital
structures." Also, "both sales risk and operating risk are determined in large part by
the type of business the company is in. But management has more opportunity to
manage and control operating risk than sales risk."
Degree oof Financial Leverage - ANSWER✔✔DFL = (%Change in NI)/(%Change
in Operating Income)
DFL = (Q(P-V)-F))/(Q(P-V)-F-C)
C = Fixed financial cost
DFL = Operating income/Operating income - Interest expense
Degree of Operating Leverage - ANSWER✔✔DOL = (%Change in Operating
Income)/(%Change in Units sold)
DOL = (Q(P-V))/(Q(P-V)-F)
Smart beta - ANSWER✔✔[s]mart beta, involves the use of simple, transparent,
rules-based strategies as a basis for investment."
based on such factors as size, value, momentum, or dividend characteristics.
Capital Allocation Line - ANSWER✔✔portfolios composed of the risk-free asset
and a risky asset, the expected return as a function of standard deviation of returns
is graphically represented by the capital allocation line.
And Answers With Verified Solutions
100% Correct!!!
Value chain analysis - ANSWER✔✔specific activities carried out by the firm,
"[v]alue chain analysis provides a link between the firm's value proposition for
customers and its profitability. It involves: 1. identifying the specific activities
carried out by the firm,..."
Long term securities - ANSWER✔✔longer term-securities "are generally more
costly to the firm, but they can provide the firm with increased financial
flexibility."
Commercial Paper - ANSWER✔✔commercial paper is a short-term external
source of financing that often requires companies to have a back-up line of credit
and constantly reissue. In addition, it is only available as a source of financing to
large, well-rated companies.
uncommitted line of credit - ANSWER✔✔"the least reliable form of bank
borrowing" and the bank "reserves the right to refuse to honor any request for use
of the line" of credit.
WACC - ANSWER✔✔WACC = wd×rd × (1 - t) + we×re.
Equity Beta - ANSWER✔✔Beta equity = Asset Beta * (1+(1-tax)*(D/E))
A company's management most likely has the greatest flexibility in managing
which of the following risks? - ANSWER✔✔Financial risk because "[u]nlike
operating leverage, the degree of financial leverage is most often a choice by the
, company's management. Whereas operating costs are very similar among
companies in the same industry, competitors may decide on differing capital
structures." Also, "both sales risk and operating risk are determined in large part by
the type of business the company is in. But management has more opportunity to
manage and control operating risk than sales risk."
Degree oof Financial Leverage - ANSWER✔✔DFL = (%Change in NI)/(%Change
in Operating Income)
DFL = (Q(P-V)-F))/(Q(P-V)-F-C)
C = Fixed financial cost
DFL = Operating income/Operating income - Interest expense
Degree of Operating Leverage - ANSWER✔✔DOL = (%Change in Operating
Income)/(%Change in Units sold)
DOL = (Q(P-V))/(Q(P-V)-F)
Smart beta - ANSWER✔✔[s]mart beta, involves the use of simple, transparent,
rules-based strategies as a basis for investment."
based on such factors as size, value, momentum, or dividend characteristics.
Capital Allocation Line - ANSWER✔✔portfolios composed of the risk-free asset
and a risky asset, the expected return as a function of standard deviation of returns
is graphically represented by the capital allocation line.
