CFA Level 1 Practice Test (Basic)

The theory that deals with conflicts of interest between a company’s owners and its creditors is most appropriately called:

For which two of a company’s stakeholders does information asymmetry most likely make monitoring more difficult?

The least likely item to be a requirement for good stakeholder management is:

An agreement between a company and a labor union that represents most of its employees would be most appropriately considered part of a company’s

The type of voting that is most likely to allow minority stockholders a greater representation on the board of directors is:

The type of resolution most likely to require a supermajority of shareholder votes for passage is a resolution to

The board of directors committee most likely to be responsible for monitoring the performance of a project that requires a large capital expenditure is

Which of the following statements is most accurate? Ethics can be described as:

Which of the following statements is most accurate? Standards of conduct:

Which of the following statements concerning corporate takeovers is most accurate?

Benefits of effective corporate governance and stakeholder management most likely include

Executive compensation and bonuses are most likely consistent with the interests of shareholders if they are:

The method of ESG integration that does not exclude any sectors but seeks to invest in the companies with the best practices regarding employee rights and environmental sustainability is:

Which of the following statements is most accurate? Investment professionals have a special responsibility to act ethically because:

Which of the following statements best completes the following sentence? Professionals use their specialized knowledge and skills:

Which of the following statements is most accurate? A profession’s code of ethics:

Which of the following will most likely determine whether an individual will behave unethically?

Which of the following statements is most accurate?

The post-audit is used to:

Which of the following statements concerning the principles underlying the capital budgeting process is most accurate?

An analyst has gathered the following data about two projects, each with a 12% required rate of return.

 If the projects are independent, the company should:

An analyst has gathered the following data about two projects, each with a 12% required rate of return.

If the projects are mutually exclusive, the company should:

Which of the following statements about NPV and IRR is least accurate?

A company is considering the purchase of a copier that costs $5,000. Assume a required rate of return of 10% and the following cash flow schedule:

Year 1: $3,000.
Year 2: $2,000.
Year 3: $2,000.

What is the project’s NPV?

A company is considering the purchase of a copier that costs $5,000. Assume a required rate of return of 10% and the following cash flow schedule:

Year 1: $3,000.
Year 2: $2,000.
Year 3: $2,000.

The project’s IRR is closest to:

Which of the following statements is most accurate?

Which of the following statements is most accurate?

Use the following data to answer this

A company is considering the purchase of a copier that costs $5,000. Assume a required rate of return of 10% and the following cash flow schedule:

Year 1: $3,000.
Year 2: $2,000.
Year 3: $2,000.

What is the project’s payback period?

Use the following data to answer this

A company is considering the purchase of a copier that costs $5,000. Assume a required rate of return of 10% and the following cash flow schedule:

Year 1: $3,000.
Year 2: $2,000.
Year 3: $2,000.

The project’s discounted payback period is closest to

Use the following data to answer this

A company is considering the purchase of a copier that costs $5,000. Assume a required rate of return of 10% and the following cash flow schedule:

Year 1: $3,000.
Year 2: $2,000.
Year 3: $2,000.

What is the project’s profitability index (PI)?

Which of the following statements about the payback period method is least accurate? The payback period

Which of the following statements is least accurate? The discounted payback period:

The NPV profiles of two projects will intersect:

Which of the following statements most accurately describes the IRR and NPV methods?

Fullen Machinery is investing $400 million in new industrial equipment. The present value of the future after-tax cash flows resulting from the equipment is $700 million. Fullen currently has 200 million shares of common stock outstanding, with a current market price of $36 per share. Assuming that this project is new information and is independent of other expectations about the company, what is the theoretical effect of the new equipment on Fullen’s stock price? The stock price will

Which of the following situational influences is likely to have the most effect on the financial adviser’s efforts to get new clients to invest in the funds? His relationship with his:

Which of the following statements is most accurate? An ethical decision making framework:

Which of the following is most accurate? Ethical decision-making frameworks:

Which of the following is most accurate? Ethical decision-making frameworks:

Using an ethical decision-making framework, which of the following duties would most likely take precedence in the scenario described? The financial adviser’s duty to his:

Using an ethical decision-making framework, the financial adviser would most likely

An analyst gathered the following data about a company:

Assuming a 40% tax rate, what after-tax rate of return must the company earn on its investments?

A company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required return on debt is 9% and 14% for equity. If the company is in the 40% tax bracket, the company’s marginal cost of capital is closest to:

What happens to a company’s weighted average cost of capital (WACC) if the firm’s corporate tax rate increases and if the Federal Reserve causes an increase in the risk-free rate, respectively? (Consider the events independently and assume a beta of less than one.)

Flynn Company has a capital structure of 40% debt, 50% common equity, and 10% preferred equity, based on market values. Firms in Flynn’s industry have on average 30% debt, 55% common equity, and 15% preferred equity. Flynn’s management intends to issue equity shares to bring the proportion of common equity up to 55% and keep the proportion of preferred equity at 10%. To estimate Flynn’s WACC, an analyst should use a weight of debt:

An investment opportunity schedule is most accurately described as illustrating all the projects:

To evaluate a project with less risk than the average risk of a company’s existing projects, an analyst should discount its cash flows at an interest rate

A company has $5 million in debt outstanding with a coupon rate of 12%. Currently, the yield to maturity (YTM) on these bonds is 14%. If the firm’s tax rate is 40%, what is the company’s after-tax cost of debt?

A company’s $100, 8% preferred is currently selling for $85. What is the company’s cost of preferred equity?

The expected dividend is $2.50 for a share of stock priced at $25. What is the cost of equity if the long-term growth in dividends is projected to be 8%?