CFA Institute CFA-LEVEL-1 Online Practice Questions and Exam Preparation

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2141:

  According to GAAP classification of cash flows, all of the following are financing cash flows except:

  A. share repurchase.
  B. interest paid on new debt.
  C. losses on debt retirement.
  D. dividends paid out.
  B. interest paid on new debt.

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  Explanation

  Interest payments and receipts are classified as operating cash flows.

• Question 2142:

  Standard III (E) is known as ________.

  A. Prohibition against Use of Material Nonpublic Information
  B. Preservation of Confidentiality
  C. Fair Dealing
  D. Professional Misconduct
  E. Interactions with Clients and Prospects
  F. Investment Process
  G. Duty to Employer
  H. None of these answers
  H. None of these answers

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  Explanation

  Standard III (E) is Responsibilities of Supervisors. Be sure you remember that this standard may often be cited as a violation, along with most other standards (because failure to supervise is often at the root of many of the standard violations).

• Question 2143:

  Larry Rile is evaluating the investment merits of Bing Corp., a successful motorcycle manufacturer. Rile is forecasting a dividend in year I of $1.50 per share, a dividend in year 2 of $3. 00 per share, and a dividend in year 3 of 4. 50 per share. After year 3, Rile expects dividends to grow at the rate of 6% per year. Rile calculated a beta of 1.3 for Bing Corp. Rile expects the SandP 500 index to return 8%. The U.S. Treasury bill is yielding 2%. Using the multistage dividend discount model, what is Bing Corp.'s intrinsic value to the nearest dollar?

  A. $92 per share
  B. $102 per share
  C. $112 per share
  B. $102 per share

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  Explanation

• Question 2144:

  Which of the following is/are true?

  I. An increase in inventories has a positive impact on cash flows.

  II. An increase in receivables has a negative impact on cash flows.

  III. Deferred taxes increase current cash balance.

  IV.

  Utilization of tax loss carry-forwards has a positive impact on cash flows.

  A. I, II and IV
  B. II and III
  C. I and IV
  D. II, III and IV
  D. II, III and IV

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  Explanation

  An increase in inventories implies cash was spent to obtain more goods than were sold. An increase in receivables implies part of the sales were made on credit, not a cash basis. Deferring taxes implies some of the cash expense was delayed into the future, increasing the current cash balance. Utilization of taxloss carry-forwards implies a reduction in the taxable income by the amount of the carry-forward. This reduces cash expense on taxes.

• Question 2145:

  A stock's P/E ratio is 10.4, with an expected return on equity of 14% and a dividend growth rate of 5. 7%. The firm's dividend payout ratio equals ________.

  A. 24. 19%
  B. 56. 17%
  C. 86. 32%
  D. 13. 68%
  C. 86. 32%

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  Explanation

  Po/E1 = dividend payout/(k - g)

  Therefore, 10.4 = dividend payout /(0.14 - 0.057), giving dividend payout = 86. 32%.

• Question 2146:

  Treasury stock is

  A. assets held for safekeeping in company's vaults.
  B. a company's own stock that it has repurchased.
  C. retained earnings that have been appropriated to make equity investments.
  D. investments in government securities.
  B. a company's own stock that it has repurchased.

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  Explanation

  Treasury stock is not an asset. It represents shares of a company's stock reacquired after having been previously issued and fully paid.

• Question 2147:

  All of the following are attributes of depreciation except

  A. depreciation stays on the balance sheet as long as the asset is owned by the corporation.
  B. depreciation provides funds for replacement of an asset.
  C. depreciation is allocation of the cost of an asset over its useful life.
  D. the purpose of depreciation is to charge against operations, by means of allocation, the cost of an asset.
  B. depreciation provides funds for replacement of an asset.

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  Explanation

  Depreciation is a non-cash expense. It shows up as an increase to cash on the statement of cash flows.

• Question 2148:

  Which of the following would affect the comparison of financial statements across two different firms?

  I. different accounting principles

  II. different accounting estimates

  III. different reporting periods

  IV.

  different industries

  A. I and IV
  B. I, III and IV
  C. I, II, III and IV
  D. I and II
  C. I, II, III and IV

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  Explanation

  All of these responses would affect the comparison of financial statements across two different firms.

• Question 2149:

  Samples of the wires coming off the production line were tested for tensile strength. The statistical results (in PSI) were: Mean = 500 Median = 500 Mode = 500 Standard deviation = 40 Mean deviation = 32 Quartile deviation = 25 Range = 240 Number is sample = 100 The middle 95 percent of the wires tested between approximately what two values?

  A. 450 and 550
  B. 420 and 580
  C. 380 and 620
  D. 460 and 540
  E. None of these answers
  B. 420 and 580

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  Explanation

  95% of the observations lie between plus and minus two standard deviations from the mean, so it is 500 +/- 2(40).

• Question 2150:

  Which of the following would not be a limitation of the balance sheet?

  A. Long-lived assets may not reflect their market value because they are stated at historical cost.
  B. Significant assets and liabilities may be omitted because GAAP does not require their inclusion.
  C. GAAP permits companies to delay recognition of value changes, such as employee benefit plans.
  D. Some assets and liabilities are carried at historical cost bearing little relationship to their real market value.
  E. The firm's market value would not be able to be estimated due to historical costing.
  E. The firm's market value would not be able to be estimated due to historical costing.

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  Explanation

  The balance sheet does not report the market value of a firm's assets, liabilities, or equity, although the information provided can be useful when estimating the market value of the firm or its securities.