CFA Level 1 question 3
Rahul is planning to go for an European tour. The cost of the tour if paid immediately is USD 4,500. Alternatively the tour operator provides an option to pay the tour cost in installments of Rs.1200 per year for 4 years with the 1st due payable immediately. The rate of interest at which Rahul will be indifferent between choosing immediate payment and tour operator's installment scheme is closest to
a) 0.85%
b) 2.63%
c) 4.48%
can someone provide me with the cfa material, can't download through torrents (company policy)
would be great if could it upload it here or some alternative.
Can anyone list out changes in schweser notes cfa lvl1 between 2012 2013
CFA Level 1 question 4
T &L; Ltd is evaluating an investment in an infrastructure project which would require them to invest USD 45,000 and USD 25,000 at the beginning of year 1 and year 2 respectively. From year 3 through 5 the project is expected to give cash inflow of USD 30,500 at the end of the year for each of the three years. If T&L;'s cost of capital is 8% then based on Net Present Value concept for evaluating a project T&L; should
a) Accept this project as the NPV is USD 4,631
b) Accept this project as the NPV is USD 4,289
c) Reject the project as NPV is USD (-760)
CFA Level 1 question 3
Rahul is planning to go for an European tour. The cost of the tour if paid immediately is USD 4,500. Alternatively the tour operator provides an option to pay the tour cost in installments of Rs.1200 per year for 4 years with the 1st due payable immediately. The rate of interest at which Rahul will be indifferent between choosing immediate payment and tour operator's installment scheme is closest to
a) 0.85%
b) 2.63%
c) 4.48%
Answer C: 4,500 = 1200*(1+r)^0 +1200*(1+r)^1 +1200*(1+r)^2 +1200*(1+r)^3. Solve for 'r' in the equation. R= 4.48%
CFA Level 1 question 4
T &L; Ltd is evaluating an investment in an infrastructure project which would require them to invest USD 45,000 and USD 25,000 at the beginning of year 1 and year 2 respectively. From year 3 through 5 the project is expected to give cash inflow of USD 30,500 at the end of the year for each of the three years. If T&L;'s cost of capital is 8% then based on Net Present Value concept for evaluating a project T&L; should
a) Accept this project as the NPV is USD 4,631
b) Accept this project as the NPV is USD 4,289
c) Reject the project as NPV is USD (-760)
€‹
Answer C: NPV of cash outflows = 45000*(1+8%)^0 + 25,000*(1+8%)^1 = -68,148. NPV cash inflows = 30,500 *(1+8%)^3+ 30,500 *(1+8%)^4 +30,500 *(1+8%)^5 = 67,388
NPV = -68,148+67,388 = -760.07 €‹
CFA Level 1 question 5
Professional Ltd is evaluating 2 mutually exclusive projects. Project A would require an investment of USD 5000 at the beginning of year 1 and will give cash inflow of USD 3000 in the beginning of each of year 2 and year 3. Project B would require an investment of USD 10000 at the beginning of year 1 and will give cash inflow of USD 5800 at the beginning of year 2 and USD 6000 at the beginning of year 3. If Professional Ltd's Cost of capital is 9% then the company should choose
a) Project A as it has an IRR 13.07% which is higher than project B's IRR
b) Project B as it has an NPV USD 371 which is higher than project B's NPV of USD 277
c) Project B as it has an NPV USD 340 which is higher than project B's NPV of USD 254
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CFA Level 1 question 5
Professional Ltd is evaluating 2 mutually exclusive projects. Project A would require an investment of USD 5000 at the beginning of year 1 and will give cash inflow of USD 3000 in the beginning of each of year 2 and year 3. Project B would require an investment of USD 10000 at the beginning of year 1 and will give cash inflow of USD 5800 at the beginning of year 2 and USD 6000 at the beginning of year 3. If Professional Ltd's Cost of capital is 9% then the company should choose
a) Project A as it has an IRR 13.07% which is higher than project B's IRR
b) Project B as it has an NPV USD 371 which is higher than project B's NPV of USD 277
c) Project B as it has an NPV USD 340 which is higher than project B's NPV of USD 254
Answer B: Project A's NPV is USD 277 and Project B's NPV is USD 371. (note that the cash flows are the beginning of the year). In case of conflict between NPV and IRR, project with higher NPV should be given preference.
CFA Level 1 question 6
Mask Ltd is investing in a project which would require an investment of USD 100,000 immediately. The project will provide a cashflow of USD 42,000 for the next three years starting from the end of current year. The cost of capital for Mask Ltd is 7%. The Discounted Payback period for this project is close to
a) 2.70 years
b) 2 .67 years
c) 2 .91 years
CFA Level 1 question 6
Mask Ltd is investing in a project which would require an investment of USD 100,000 immediately. The project will provide a cashflow of USD 42,000 for the next three years starting from the end of current year. The cost of capital for Mask Ltd is 7%. The Discounted Payback period for this project is close to
a) 2.70 years
b) 2 .67 years
c) 2 .91 years
€‹
Answer A: -100,000 * (1+7%)^0 + 42,000*(1+7%)^1+ 42,000*(1+7%)^2 = -24063. At the end 2nd year 24,063 need to be recovered. For the full year USD 34,285 on PV basis will be recovered. 24,063/34285 leaves us with 0.7 years. So discounted payback period = 2 years + 0.7 years
CFA Level 1 question 7
Bluebay Ltd reported the following in their latest annual report. Value of equity – USD 25.3 million, Value of Debt – USD 9.82 million. The current market cap of the company is USD 38.6 million and the market value of debt is USD – 9.82 million. The company's cost of equity is 12% and the post tax cost of debt is 7.5%. The company's effective tax rate is 40%. Bluebay's weighted average cost of capital is close to
a) 10.74%
b) 11.09%
c) 10.48%
Where do you think USD-Indian Rupee exchange rate will move in next 1 year
CFA Level 1 question 7
Bluebay Ltd reported the following in their latest annual report. Value of equity – USD 25.3 million, Value of Debt – USD 9.82 million. The current market cap of the company is USD 38.6 million and the market value of debt is USD – 9.82 million. The company's cost of equity is 12% and the post tax cost of debt is 7.5%. The company's effective tax rate is 40%. Bluebay's weighted average cost of capital is close to
a) 10.74%
b) 11.09%
c) 10.48%
Answer B - 11.09%: Please note the given cost of debt is post tax and hence no tax shield adjustment is required for cost of debt. For calculating WACC market value should be used.
Farm Ltd has USD 10 mn debt outstanding at a cost of 6%. The company plans to issue new bonds worth USD 8 mn at a cost of 7% which is likely to be subscribed at par. The company's market value of equity is USD 24 mn and book value of equity is USD 14 mn. Farm's cost of equity is 12%. If the company's effective tax rate is 30% then the weighted average cost of capital of the company post the new debt issue would be close to
a) 9.86%
b) 9.78%
c) 8.96%
Hello All,
I need a lil advice. I have no finance background and i will be pursuing MBA this year starting August '13. I want to know is it possible for someone with no finance background to clear level1 this dec without any coaching. And if yes which books or course material should I refer? Please reply.
hello guys..
last year i appeared for cfa level 1 in DEc 2012 but couldn't clear it.. this year again i m going to appear for it in Dec.
i just want to know do i have to pay the entire fees or just exam fees. Do i have to renew my member ship ??
pls help
FinShiksha
CFA Level 1 question 8
Farm Ltd has USD 10 mn debt outstanding at a cost of 6%. The company plans to issue new bonds worth USD 8 mn at a cost of 7% which is likely to be subscribed at par. The company's market value of equity is USD 24 mn and book value of equity is USD 14 mn. Farm's cost of equity is 12%. If the company's effective tax rate is 30% then the weighted average cost of capital of the company post the new debt issue would be close to
a) 9.86%
b) 9.78%
c) 8.96%
Answer C: Remember for calculating WACC one need to use marginal cost of the respective capital. Hence pre tax cost of debt is 7%. Post tax cost of debt is 4.9%. Weight debt post new issue is 42.86%. Hence WACC = 42.86%*4.9% + 57.14% * 12% = 8.96%
CFA Level 1 question 9
Brigade Ltd currently has total asset size of USD 110 mn. The company's book value of equity is USD 65 mn while the market cap is USD 97 mn. The cost of equity of brigade is 11.2%. The debt of the company is issued as bonds with coupon of 4.5% and has 5 years remaining for maturity. The bonds which pay coupons semi-annually are quoting at a yield of 3.9% The Company's marginal tax rate is 35%. The Weighted Average Cost of Capital of Brigade Ltd would be close to
a) 8.40%
b) 8.45%
c) 8.84%
