Cisco
CompTIA
ISC
EC-Council
EXIN
Fortinet
ITIL
Juniper
Microsoft
VMware
Avaya
SAP
Google
NVIDIA
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk
ServiceNow
All Vendors
  2. Home
  3. Exams
  4. CFA
  5. CFA I

CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 98 )

Updated On: 26-Jan-2026
Page 98 of 793
PDF with 3960 Questions

Which of the following statements is most correct?

  1. All else being equal, an increase in a firm's fixed costs will decrease its degree of operating leverage.
  2. All of these statements are correct.
  3. Firms that have large fixed costs and low variable costs have a higher degree of financial leverage than do firms with low fixed costs and high variable costs.
  4. If a firm's net income rises 10 percent every time its EBIT rises 10 percent, this implies the firm has no debt outstanding.
  5. None of these statements are correct.

Answer(s): D

Explanation:

If no debt were used, there will be no interest charges, which is included in net income but not EBIT.



Grateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period and current stock price are $5 and $45, respectively, what is the company's growth rate?

  1. 3.44%
  2. 8.16%
  3. 2.68%
  4. 4.64%
  5. 6.75%

Answer(s): D

Explanation:

Solve for k(s) (component cost of retained earnings or internal equity):
WACC (Weighted Average Cost of Capital) = 11.5% = w(s)k(s) + w(d)k(d)(1 - T) 11.5% = 0.55k(s) + 0.45(0.09)(0.70)
k(s) = 15.75%.
Solve for g: k(s) = 15.75% = D1/P0 + g
15.75% = $5/$45 + g
g = 4.64%.



A project has the following cash flows over the next 5 years: $1,000, $600, $300, $1,200 and $1,400. Assume all cash flows occur at the end of a year. The project requires an initial cash outlay of $2,900. The project's cost of capital is 8%. The MIRR of the project equals ________.

  1. 11.54%
  2. 12.22%
  3. 9.92%
  4. 14.19%

Answer(s): B

Explanation:

The MIRR is defined as that rate which discounts the terminal value of the cash inflows to equate to the present value of a project's costs (using the project's cost of capital). The present value of the costs = 2,900. The terminal value (future value at the end of year 5) of the project equals 1,000*1.084 + 600*1.083 + 300*1.082 + 1,200*1.08 + 1,400 = 5,162. Note that this is calculated using the project's cost of capital. Then, MIRR satisfies 2,900 = 5,162/(1+MIrr)5. Solving gives MIRR = 12.22%.



Which of the following statements is most correct?

  1. The MIRR method will always arrive at the same conclusion as the NPV method.
  2. All of the statements are correct.
  3. The MIRR method can overcome the multiple IRR problem, while the NPV method cannot.
  4. None of the statements are correct.
  5. The MIRR method uses a more reasonable assumption about reinvestment rates than the IRR method.

Answer(s): E

Explanation:

MIRR and NPV can conflict for mutually exclusive projects if the projects differ in size. NPV does not suffer from the multiple IRR problem.



Braun Industries is considering an investment project, which has the following cash flows:
tProject Cash Flows
0-$1,000
1 400
2 300
3 500
4 400
The company's WACC is 10 percent. What is the project's payback, internal rate of return and net present value?

  1. Payback = 2.6, IRR = 24.12%, NPV = $300.
  2. Payback = 2.6, IRR = 21.22%, NPV = $260.
  3. Payback = 2.4, IRR = 21.22%, NPV = $260.
  4. Payback = 2.6, IRR = 21.22%, NPV = $300.
  5. Payback = 2.4, IRR = 10.00%, NPV = $600.

Answer(s): B

Explanation:

Payback = 2 + 300/500 = 2.6 years.
IRR: -1000 + 400/(1+Irr)^1 + 300/(1+Irr)^2 + 500/(1+Irr)^3 + 400/(1+Irr)^4 = 0: IRR = 21.22%.
NPV = -1000 + 400/(1+.10)^1 + 300/(1+.10)^2 + 500/(1+.10)^3 + 400/(1+.10)^4 = $260.46.



Viewing page 98 of 793
Viewing questions 486 - 490 out of 3960 questions



Post your Comments and Discuss CFA CFA I exam prep with other Community members:

Join the CFA I Discussion