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. Test Prep
  5. CFA-Level-I

Test Prep CFA-Level-I Exam
CFA® Level I Chartered Financial Analyst (Page 7 )

Updated On: 26-Jan-2026
Page 7 of 793
PDF with 3963 Questions

The percentage mix of debt, preferred stock and common equity that maximizes a firm's stock price is known
as:

  1. Composite Cost of Capital (CCC)
  2. Security Market Line
  3. Weighted Average Cost of Capital (WACC)
  4. Target (Optimal) Capital Structure
  5. Least Cost Structure
  6. Efficient Frontier

Answer(s): D

Explanation:

The Target (Optimal) Capital Structure is defined as the percentages of debt, preferred stock, and common equity that will maximize the firm's stock price.



Stock dividends

  1. must be accompanied by cash dividends.
  2. are similar to stock splits in that they do not change the fundamental position of current shareholders.
  3. have the same effects on financial statements as cash dividends.
  4. are viewed unfavorably by investors and thus should not be used.
  5. have no effect on a firm's balance sheet.

Answer(s): B

Explanation:

Stock dividends are dividends paid in the form of additional shares of stock rather than in cash. The total number of shares is increased, so earnings, dividends, and price per share all decline. Stock dividends that are used on a regular basis will keep the stock price more or less constrained, that is, within a desired trading range.



As the debt level rises, the cost of equity increases because:

  1. the probability of default increases.
  2. all of these answers.
  3. the variability of EPS increases.
  4. the financial risk increases.

Answer(s): B

Explanation:

All of the above are reasons why the cost of equity increases as the debt level rises.



Stromburg Corporation makes surveillance equipment for intelligence organizations. Its sales are $75,000,000. Fixed costs, including research and development, are $40,000,000, while variable costs amount to 30 percent of sales. Stromburg plans an expansion which will generate additional fixed costs of $15,000,000, decrease variable costs to 25 percent of sales, and also permit sales to increase to $100,000,000. What is Stromburg's degree of operating leverage at the new projected sales level?

  1. 3.50
  2. 3.33
  3. 4.67
  4. 4.20
  5. 3.75

Answer(s): E

Explanation:

Calculate DOL using new sales, new variable cost percentage, and new fixed costs: (In millions) DOL(S) = S- VC/S-VC-FC = $100-$25/($100-$25-$55) = 3.75.



Clay Industries, a large industrial firm, is evaluating the sales of its existing line of coiled machine tubing. In their analysis, the operating managers of Clay Industries have identified the following information related to the

coiled machine tubing division and its product: Annual fixed operating expenses of $925,000 Average variable cost of $90 Break-even quantity of 20,109 units Which of the following best describes the average variable cost for this product?

  1. $44
  2. None of these answers is correct.
  3. $46
  4. $41.70
  5. $38
  6. The average selling price of this product cannot be determined from the information provided.

Answer(s): A

Explanation:

To calculate the break-even quantity for a product, use the following equation: {Fixed operating costs/[avg.
sales price per unit - variable cost per unit]}. To determine the average selling price of this product, we must rearrange the standard equation using algebra, in a manner such that the resulting equation resembles the following: {[$925,000/20,109] + X = $90}. This equation is further rearranged into the following: {$46 + X = $90}.
Finally, the ending equation becomes: {X = $90 - $46}. Solving for X yields an average variable cost per unit of $44.



Viewing page 7 of 793
Viewing questions 25 - 28 out of 3963 questions



Post your Comments and Discuss Test Prep CFA-Level-I exam prep with other Community members:

Join the CFA-Level-I Discussion