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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3301:

  Maxvill Motors has annual sales of $15,000. Its variable costs equal 60 percent of its sales, and its fixed costs equal $1,000. If the company's sales increase 10 percent, what will be the percentage increase in the company's earnings before interest and taxes (EBIT)?

  A. 18%
  B. 20%
  C. 16%
  D. 12%
  E. 14%
  D. 12%

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  Explanation

  First, find EBIT before sales increase:

  EBIT = Sales - (Sales x VC%) - FC

  = $15,000 - ($15,000 x 0.60) - $1,000

  = $5,000.

  Now, assuming sales increase by 10% or to $15,000 x 1.10 = $16,500, calculate the new EBIT. EBIT = $16,500 - ($16,500 x 0.60) - $1,000 = $5,600.

  So, the percentage increase is [($5,600 - $5,000)/$5,000] x 100 = 12%.

• Question 3302:

  Firms report payments for capital leases in the cash flow statement

  A. only as financing cash flows.
  B. partly as operating cash flows and partly as investing cash flows.
  C. only as investing cash flows.
  D. partly as operating cash flows and partly as financing cash flows.
  D. partly as operating cash flows and partly as financing cash flows.

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  Explanation

  Interest expense is classified as CFO and amortization of the lease obligation is reported as cash from financing activities.

• Question 3303:

  Relationships with and Responsibilities to the Investing Public are dealt with under:

  A. Standard V
  B. None of these answers
  C. Standard III
  D. Standard II
  E. Standard IV
  F. Standard I
  A. Standard V

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  Explanation

  Relationships with and Responsibilities to the Investing Public are dealt with under Standard V.

• Question 3304:

  Management is considering adopting a bonus system to increase production. One suggestion is to pay a bonus on the highest 5 percent of production based on past experience. Past records indicate that, on the average, 4,000 units of a small assembly are produced during a week. The distribution of the weekly production is approximately normally distributed with a standard deviation of 60 units. If the bonus is paid on the upper 5 percent of production, the bonus will be paid on how many units or more?

  A. None of these answers
  B. 3196
  C. 5120
  D. 4099
  E. 6255
  D. 4099

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  Explanation

  We want the area 1.0 - 0.55 = 0.45. For this we have a z value of 1.645. Now, using z = (x-u)/sigma, we have 1.645 = (x-4000)/60. x = 4099.

• Question 3305:

  When a business is acquired, the purchasing company calculates goodwill associated with the acquisition as the difference between the purchase price and the ________.

  A. book value of the identifiable net assets acquired
  B. book value of the net tangible assets acquired
  C. fair value of the net tangible assets acquired
  D. book value of the total assets acquired
  E. fair value of the identifiable net assets acquired
  E. fair value of the identifiable net assets acquired

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  Explanation

  Goodwill is the difference between the amount paid for the business and the fair value of this business. The fair value can be calculated using net assets (total assets minus total liabilities), or shareholders' equity.

• Question 3306:

  Which is not a correct stage in a 5-stage industry life cycle?

  A. pioneering development
  B. rapid accelerating growth
  C. rapid decline and market exit
  D. mature growth
  E. deceleration of growth and decline
  C. rapid decline and market exit

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  Explanation

  Stabilization and market maturity would be the other correct stage.

• Question 3307:

  The weights of cans of fruit are normally distributed with a mean of 1,000 grams and a standard deviation of 50 grams. What portion of the cans weigh 860 grams or less?

  A. None of these answers
  B. 0.8400
  C. 0.0001
  D. 0.0100
  E. 0.0026
  E. 0.0026

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  Explanation

  z = (x-u)/sigma = 860 - 1000/50 = -2. 8. For z = 2. 8, the area is 0.4974. So 1.0 - 0.9974 = 0.0026.

• Question 3308:

  Which of the following are considered when applying generally accepted accounting principles.

  A. When income is recognized as earned.
  B. How assets are measured.
  C. All of these answers are correct.
  D. When expenses and losses accrue.
  E. When liabilities are incurred.
  C. All of these answers are correct.

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  Explanation

  The rules or standards of accounting determine such matters as how assets are measured, when liabilities are incurred, when income is recognized as earned, and when expenses and losses accrue.

• Question 3309:

  The relationship between inflation and unemployment rate is known as:

  A. Phillips curve.
  B. Equation of exchange
  C. Lucas curve.
  D. Inflation-unemployment parity
  A. Phillips curve.

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  Explanation

  Following earlier work by the British economist,

  A.Phillips, economists noted an inverse relationship between the rate of unemployment and the rate of inflation. This curve is widely known as the Phillips curve.

• Question 3310:

  Given the following net cash flows, determine the IRR of the project: TimeNet cash flow 0$1,520 1-1,000 2-1,500 3-500

  A. 36%
  B. 28%
  C. 32%
  D. 24%
  E. 20%
  D. 24%

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  Explanation

  Time line:

  0123 Periods

  1,520-1,000-1,500500

  Financial calculator solution: Using cash flows,

  Inputs: CF(0) = 1,520; CF(1) = -1,000; CF(2) = -1,500; CF(3) = 500.

  Output: IRR% = 23. 98%.