55 Free CFA Level 2 Practice Questions and Answers on Corporate Finance

55 Free CFA Level 2 Practice Questions and Answers on Corporate Finance give you the big opportunity of getting CFA designation. All the basic content in the Candidate of Body Knowledge is presented in the friendly-user layout and easy-to-understand multiple choice format. That aid you so much in absorbing the core concepts and have a good grounding of Corporate Finance. Moreover, each question is given a clear instant answer, that gives you great comfort to check out the result after taking the test. This ultimate and updated CFA practice exam is totally free in order that you can practise without any fee. Finish all the following questions to become a CFA charter holder in the future.
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-lessens the number of inaccurate acceptance/rejection conclusions

• Duties of a CFO
• Advantages of Divisional WACC
• Divisional WACC
• Why use divisional WACC?

cost of using a asset for a new project and not being able to use it for something else

• Shortage cost
• opportunity costs
• Financing Costs
• Flotation Costs

It is not always efficient to find the WACC of every project. Especially when there are many projects to consider throughout the year

• Advantages of Divisional WACC
• credit analysis
• Why use divisional WACC?
• Divisional WACC

mail float (amount of time that checks are en route)in house processing float (amount of time a firm takes to process and deposit check payments once received)availability float (amount of time for check to clear through banking system once it is deposited)

• Duties of a CFO
• credit terms
• Three different types of floats
• Types of short term debt

Theory maintaing that the sources and uses of capital should be decided on independentlyCalculations of cash flows should remain independent of financing.

• compensating balance
• Flotation Costs
• Operating Cycle
• Seperation Principle

a new product of service the decreases or increases sales (respectively) of existing products or services

• substitute; compliment (aka erosion and synergy)
• Carrying Cost of Cash, A/R, and Inv.
• Two Ways to find rate on common stock
• Shortage costs of cash, a/r, and inv

1. Initial Investment2. Operating Cash Flows3. Terminal Cash Flows

• Three Categories for Cash Flows of a Capital Budgeting Opportunity
• Weghted Average Cost of Capital
• Operating cash flow equation
• What are the two approaches to calculating component cost?

similar to a check but instead of going through a bank, it goes through the firm

• proxy beta
• Recourse
• draft
• sunk cost

-unsecured loans (line of credit) a set amount that a firm can draw from and pay off as seasonal fluctuations come around-secured loans (asset backed loans)-Commercial Paper (only used by BIG corporations)usually backed by reputation

• assignment
• Duties of a CFO
• Types of short term debt
• credit terms

Should:-opportunity costs-substitutionary; complimentaryShould Not-Sunk costs-financing costs

• What goes into the opportunity cost of a new project
• incremental cash flows
• Which of the three component costs must account for tax?
• What should be included in incremental cash flows and what shouldnt?

you can accept one or the other but not both

• assignment
• Duties of a CFO
• mutually exclusive project
• a zero balance account

percent of borrowed money bank requires to be in bank account for the firm to continue borrowing

• Seperation Principle
• compensating balance
• Component costs
• depreciable basis

cash- may not have the cash when you need it to pay off loans or short term financinga/r- could lose sales from people who prefer buying on creditinv- people will get angry and take their business elsewhere if you dont have what they want on hand

• Shortage costs of cash, a/r, and inv
• Carrying Cost of Cash, A/R, and Inv.
• Types of short term debt
• Shortage cost

a process where a firm can borrow from another firm providing them with a claim on acounts recivable as well as the right to recourse

• sunk cost
• assignment
• Carrying cost
• Cash Cycle

a listing of the credit period, discount, and type of credit instrument used

• credit terms
• credit analysis
• Recourse
• assignment

a cost that has already incurred-never counted in project cash flows!!!

• Shortage cost
• sunk cost
• Float
• Carrying cost

When the project is similar to the other projects the company undertakes.

• When can a company's over all WACC be used for a project WACC?
• Weghted Average Cost of Capital
• 5 C's of Credit Analysis
• What are the two approaches to calculating component cost?

1. transaction facilitation (use of cash to pay employee wages, taxes, suppliers, bills, debt interest, and dividends)2. compensating balances (required amount to cash in account to be able to borrow from the bank)3. investment opportunities (being able to take advantage of good investment opportunities quickly)

• Shortage cost
• Financing Costs
• Reasons for Holding cash
• Carrying cost

the risk of a project to the equity holders stemming from the use of debt in the financial structure of the firm-how a business decides to divey up the rick between debt and equity

• Financing Costs
• Financial Risk
• sunk cost
• Carrying cost

-any asset used, employee wages and benefits for working on it(they are no longer available to work on anything else)

• What goes into the opportunity cost of a new project
• Which of the three component costs must account for tax?
• opportunity costs
• Two Ways to Approach Commission Cost

Individual costs of each type of capital-bonds, preferred stock, common stock

• Component costs
• opportunity costs
• Flotation Costs
• Financing Costs

capital asset pricing model

• Two Ways to Approach Commission Cost
• What goes into the opportunity cost of a new project
• Two Ways to find rate on common stock
• What calculation will give you the most accurate component cost?

fees paid by firms to investment banks for issuing new securities

• opportunity costs
• Shortage cost
• Flotation Costs
• Financing Costs

time it takes to turn inventory into cash

• Cash Cycle
• Carrying cost
• Operating Cycle
• Financing Costs

Adv.-cheapest form of financing-low rate of return because of the low risk-interest is tax deductable-in good times it makes stats look goodDisadv.-bad times culd lead to default/bankruptcy-high debt means low stock rates

• Shortage costs of cash, a/r, and inv
• Advantages of Divisional WACC
• Weghted Average Cost of Capital
• Advatages/Disadvantage of Debt Financing

legal right to hold a firm responsible for unpaid accounts recievable

• draft
• sunk cost
• Float
• Recourse

process of estimating expected cash flows of a project using only the relevant parts of the balance sheet and income statements

• depreciable basis
• credit analysis
• pro forma analysis
• opportunity costs