CFA Level 1 - Corporate Finance correctly answered 2023
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Course
CFA
Institution
CFA (CFA)
CFA Level 1 - Corporate Finance correctly answered 2023Capital Budgeting process - correct answer identifying and evaluating capital projects....projects where the cash flow to the firm will be received over a period longer than a year.
Capital Budgeting Steps - correct answer 1) idea generation...
capital budgeting process identifying and evaluati
capital budgeting steps 1 idea generation 2 anal
cap budgeting principals 1 decisions based on
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CFA Level 1 - Corporate Finance
correctly answered 2023
Capital Budgeting process - correct answer identifying and evaluating capital projects....projects where
the cash flow to the firm will be received over a period longer than a year.
Capital Budgeting Steps - correct answer 1) idea generation
2) analyzing project proposals
3) create the firm-wide capital budget
4) monitoring decisions and conducing a post-audti
Cap Budgeting Principals - correct answer 1) decisions based on cash flows, not accounting income
2) Cash flows based on opportunity costs & taxes
3) timing of cash flows is important
4) Cash flows are analyzed on a after-tax basis
5) financing costs are reflected in the projects required rate of return
Externalities - correct answer effects the acceptance of a project may have on other firm cash flows.
Cannibalization - correct answer when a new project takes sales from an existing product
Conventional Cash Flow Patter - correct answer sign on the cash flows changes only once, with one or
more cash outflows followed by one or more cash inflows
Unconventional Cash flow patter - correct answer more than one sign change.
NPV decision rule (independent projects) - correct answer accept any project with positive NPV and to
reject any project with a negative NPV
, Internal rate of return - correct answer discount rate that makes the PV of the expected incremental
after-tax cash inflows just equal to the initial cost of the project.
PV (inflows) = PV (outflows)
IRR decision rule - correct answer determine required rate of return for given project.
IRR > required rate return, accept
IRR < required rate return, reject
Payback period - correct answer number of years takes to recover initial cost of investment
Payback period = - correct answer full years until recover + (unrecovered cost at beginning of last year /
cash flow during last year)
Discounted payback period - correct answer uses present values of the projects estimated cash flows.
Number of years takes a project to recover its initial investment in a PV term and must be greater than
the payback period without discounting.
Profitability Index (PI) - correct answer PV of a projects future cash flows divided by the initial cash
outlay
PI = - correct answer PV of future cash flows / CFo
also
1+ (NPV / CFo)
PI Decision Rule - correct answer PI > 1, accept project
PI < 1, reject project
Crossover rate - correct answer NPV's are equal
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