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Free Questions › CFA › Corporate Issuers
Free CFA Corporate Issuers Practice Questions & Answers
900 exam-style Corporate Issuers questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 331
Inflation‑Indexed Debt – Real vs Nominal Cost For inflation‑indexed debt, the real cost of debt is best approximated by:
Select an option first.
Correct answer: C — Real yield
Explanation: Inflation‑linked bonds: real yield is the relevant real cost; nominal includes inflation uplift.
Question 332
Horizon Period for Excess Returns The “horizon period” in excess return models refers to:
Select an option first.
Correct answer: B — Time until excess returns converge to zero
Explanation: Horizon period = period over which ROIC > cost of capital is expected to persist.
Question 333
Negative ROIC but Positive Growth A firm has ROIC < WACC but is growing. All else equal, growth:
Select an option first.
Correct answer: B — Destroys value
Explanation: If ROIC < WACC, each dollar reinvested earns less than the cost of capital → growth destroys value.
Question 334
Declining Reinvestment Rate If a firm’s reinvestment rate declines over time while ROIC stays above WACC, long‑run growth will:
Select an option first.
Correct answer: B — Decrease
Explanation: g = ROIC × reinvestment. Lower reinvestment → lower growth.
Question 335
Market vs Intrinsic Contribution Analysis In M&A, contribution analysis based on market values vs intrinsic values can differ because:
Select an option first.
Correct answer: B — Market values reflect current pricing, intrinsic values reflect analyst estimates
Explanation: Market contribution uses current prices; intrinsic contribution uses analyst‑estimated fair values.
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Question 336
Spin‑Off vs Carve‑Out – Ownership In a spin‑off:
Select an option first.
Correct answer: B — Parent distributes subsidiary shares to existing shareholders
Explanation: Spin‑off: shares of subsidiary are distributed to existing shareholders.
Question 337
Spin‑Off vs Carve‑Out – Cash Proceeds In an equity carve‑out:
Select an option first.
Correct answer: A — Parent receives cash from selling a stake in subsidiary
Explanation: Carve‑out: parent sells a portion of subsidiary in an IPO → receives cash.
Question 338
If an investee’s equity becomes negative and the investor has no obligation to fund losses, the investor:
Select an option first.
Correct answer: B — Stops recognizing further losses
Explanation: When carrying amount is reduced to zero and no further obligation exists, investor stops recognizing losses.
Question 339
Double‑Trigger Dividend Cuts A “double‑trigger” for dividend cuts typically refers to:
Select an option first.
Correct answer: B — Earnings decline plus leverage/coverage deterioration
Explanation: Many firms cut dividends when earnings weaken AND leverage/coverage metrics deteriorate.
Question 340
ESG‑Adjusted Beta ESG‑adjusted beta is most likely:
Select an option first.
Correct answer: C — Traditional beta adjusted for ESG‑related risk exposures
Explanation: ESG‑adjusted beta incorporates ESG risk factors into systematic risk estimation.
Question 341
A shadow carbon price is:
Select an option first.
Correct answer: C — Internal notional price per ton of CO₂ used for decision‑making
Explanation: Shadow carbon price = internal price used to evaluate projects under assumed carbon costs.
Question 342
Transition Risk Scenario Transition risk in climate finance refers to:
Select an option first.
Correct answer: B — Policy, technology, and market shifts in the move to low‑carbon economy
Explanation: Transition risk = policy/technology/market changes as economies decarbonize.
Question 343
Physical Risk Scenario Physical climate risk refers to:
Select an option first.
Correct answer: C — Acute and chronic physical impacts (storms, floods, heat)
Explanation: Physical risk = direct physical impacts of climate change.
Question 344
The value of tax loss carryforwards depends primarily on:
Select an option first.
Correct answer: B — Ability to generate sufficient taxable income before expiry
Explanation: Carryforwards are valuable only if the firm can use them before they expire.
Question 345
Inflation‑Indexed Debt – WACC Treatment For inflation‑indexed debt in WACC, the cost of debt should be:
Select an option first.
Correct answer: B — Real yield converted to nominal using expected inflation
Explanation: Use real yield, then convert to nominal consistent with other WACC inputs.
Question 346
If reinvestment rate trends toward a stable low level and ROIC > WACC, terminal growth should:
Select an option first.
Correct answer: C — Reflect ROIC × stable reinvestment rate
Explanation: Long‑run g = ROIC × stable reinvestment rate.
Question 347
In practice, horizon period for excess returns is often:
Select an option first.
Correct answer: B — 3–5 years
Explanation: Analysts often assume 3–5 (sometimes 10) years of excess returns before convergence.
Question 348
ESG beta is likely higher for:
Select an option first.
Correct answer: B — High‑emission, regulation‑exposed sectors
Explanation: High‑emission sectors face more transition risk, raising ESG‑related systematic risk.
Question 349
Using a shadow carbon price in project appraisal:
Select an option first.
Correct answer: A — Reduces NPV of high‑emission projects
Explanation: Internal carbon cost penalizes emission‑intensive projects, lowering their NPV.
Question 350
Transition risk is typically more relevant in:
Select an option first.
Correct answer: B — Medium to long term policy/market shifts
Explanation: Transition risk unfolds over medium/long‑term policy, tech, and market changes.
Question 351
Tax loss carryforwards are best handled by:
Select an option first.
Correct answer: B — Modeling tax shields explicitly in cash flows
Explanation: Best practice: model tax shields explicitly in cash flows, not just tweak WACC.
Question 352
Across all models, the core condition for value creation is:
Select an option first.
Correct answer: B — ROIC > cost of capital
Explanation: Fundamental: firm creates value when ROIC exceeds cost of capital.
Question 353
A firm with volatile earnings is most likely to prefer which dividend policy?
Select an option first.
Correct answer: B — Stable dividend per share
Explanation: B is right because stable dividends smooth out volatility. A makes dividends volatile. C is risky. D unrealistic.
Question 354
A share repurchase financed with debt increases EPS when:
Select an option first.
Correct answer: A — Earnings yield > after‑tax borrowing cost
Explanation: A is right because borrowing is accretive only if earnings yield exceeds debt cost. B dilutes EPS. C irrelevant to EPS math. D does not guarantee EPS increase.
Question 355
Which is a reason companies repurchase shares?
Select an option first.
Correct answer: B — To signal undervaluation
Explanation: B is right: repurchases often signal management believes shares are undervalued. A not guaranteed. C unrelated. D incorrect.
Question 356
A stock split generally results in:
Select an option first.
Correct answer: B — Lower share price
Explanation: B is right: price adjusts downward proportionally. A unchanged. C decreases. D unchanged.
Question 357
Which action reduces equity value per share?
Select an option first.
Correct answer: B — Issuing shares at a discount
Explanation: B is right: issuing shares cheaply dilutes value. A increases value. C increases value. D neutral or positive.
Question 358
Which is a characteristic of preferred shares?
Select an option first.
Correct answer: B — Fixed dividend rate
Explanation: B is right: preferred dividends are usually fixed. A usually absent. C debt ranks higher. D false.
Question 359
A company’s book value per share increases when:
Select an option first.
Correct answer: A — Shares are repurchased below book value
Explanation: A is right: buying back below book value is accretive. B dilutes book value. C increases book value but not per share. D reduces equity.
Question 360
A company with stable cash flows is most likely to prefer:
Select an option first.
Correct answer: B — A stable dividend per share
Explanation: B matches stable cash flows. A, C, D are less aligned with stability.
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