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Free CFA Corporate Issuers Practice Questions & Answers

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Question 271

APV with Refinancing A project is financed 100% with equity initially. In year 3, the firm issues perpetual debt of 300 at 6% interest. Tax = 25%. Discount rate for tax shields = 6%. PV of tax shield at t=0?

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Question 272

Beta with Cash Holdings Firm equity beta (observed) = 1.2. Cash = 20% of equity value (cash beta ≈ 0). What is the beta of operating assets?

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Question 273

Beta with Operating Leverage A firm’s operating leverage increases, holding financial leverage constant. What happens to equity beta?

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Question 274

WACC with Preferred Stock Capital structure (market values): - Equity = 600 - Debt = 300 - Preferred = 100 Costs: - Equity = 12% - Debt (after tax) = 5% - Preferred = 8% WACC?

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Question 275

WACC with Negative Working Capital Financing A retailer finances part of its operations via supplier credit, resulting in negative net working capital. All else equal, this tends to:

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Question 276

Project‑Level Capital Structure A firm’s overall D/E = 0.5. A new project is financed with D/E = 1.0. Which is most appropriate?

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Question 277

Economic Depreciation vs Replacement Cost A machine costs 500, lasts 5 years, but replacement cost is expected to grow 4% annually. Straight‑line accounting depreciation is 100 per year. In year 1, economic depreciation is closest to:

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Question 278

Capital Charge vs EVA Capital = 2,000 WACC = 9% NOPAT = 220 Capital charge and EVA?

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Question 279

Residual Income vs EVA Which is most accurate?

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Question 280

APV with Distress Costs Unlevered value = 900 PV of tax shields = 150 PV of expected distress costs = 80 Levered value?

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Question 281

Deferred Tax Asset from Write‑Down Inventory book value = 200 Fair value = 150 Tax base = 200 Tax rate = 30% Deferred tax asset?

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Question 282

ESG‑Adjusted Terminal Growth Base terminal growth = 3%. Due to transition risk, long‑run growth is reduced by 0.5%. New terminal growth?

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Question 283

A firm faces two long‑run scenarios for FCF in perpetuity: - Low‑carbon transition: FCF = 220 (prob 60%) - No transition: FCF = 260 (prob 40%) Discount rate = 9%. Value?

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Question 284

Scope 1/2/3 Cost Pass‑Through A firm’s total carbon cost (Scope 1+2+3) = 60. It can pass 50% to customers. Net cost impact?

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Question 285

ESG and Cost of Debt Base cost of debt = 6%. Improved ESG reduces spread by 40 bps. Tax = 25%. Change in after‑tax cost of debt?

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Question 286

Hybrid Security in WACC A convertible bond behaves partly like debt, partly like equity. For WACC, its weight should be based on:

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Question 287

Beta for Cyclical vs Non‑Cyclical Two firms have identical leverage, but Firm A is highly cyclical, Firm B is defensive. Which has higher beta?

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Question 288

Beta for Multi‑Segment Firm with Cash Firm has: - Segment A (βu=1.4, 50% of operating value) - Segment B (βu=0.8, 50% of operating value) - Cash = 20% of total equity value What is the equity beta?

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Question 289

WACC with Project‑Specific FX Risk A USD firm invests in a EUR project. USD WACC = 9%. EUR inflation = 2%, USD inflation = 3%. Approximate EUR WACC?

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Question 290

Firm has high probability of distress and large tax shields. APV is preferred because:

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Question 291

Equity = 1,000 Cost of equity = 11% Net income = 130 Residual income?

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Question 292

EVA and Firm Value Capital = 2,500 WACC = 8% Current EVA = 50, expected to grow at 2% forever. Firm value?

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Question 293

A firm announces a large open‑market buyback instead of a special dividend. Under signaling theory, this most likely indicates:

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Question 294

D/E ratio and rebalances annually. Under the Miles–Ezzell model, the correct discount rate for the tax shield is:

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Question 295

Unlevered value = 1,200 Debt = 500 Tax rate = 30% Levered value?

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Question 296

Corporate tax = 25% Personal tax on equity = 15% Personal tax on interest = 35% Net tax advantage of debt?

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Question 297

APV with Risky Tax Shields Debt = 400 Interest rate = 7% Tax = 25% Discount rate for tax shield = 7% Perpetual debt PV of tax shield?

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Question 298

APV with Refinancing Debt issued in year 4 = 300 Interest = 6% Tax = 25% Discount rate = 6% PV of tax shield at t=0?

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Question 299

Optimal Capital Structure – Trade‑Off Theory Under trade‑off theory, optimal leverage occurs where:

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Question 300

Cost of Equity with Personal Taxes Corporate tax = 30% Personal tax on dividends = 20% Personal tax on capital gains = 10% Investors prefer:

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Free CFA Corporate Issuers Practice Questions & Answers

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