Exam (elaborations)
CFA Level 1 - Corporate Finance Questions and Answers 2024
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CFA Level 1 - Corporate Finance
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CFA Level 1 - Corporate FinanceCapital Budgeting Process (4 Steps) - answer1. Generate Idea
2. Analyze Projects
3. Create Firm Budget
4. Monitor & Post-Audit
[GACM!]
Categories of Capital Budgeting Process (5) - answer1. Replacement to Maintain or
Reduce Costs
2. Expansion of current business
3. New Products or Developments
4. Required/Regulatory Updates
5. Other (R&D, pet projects, etc)
[RENRO!]
Unconventional Cash Flows - answerMore than one sign change
5 Principles of Capital Budgeting - answer1. Cash Flow based, not accounting Income
2. Opportunity cost is considered
3. Timing of Cash flows (Discounting)
4. Tax considerations (CF is after-tax basis)
5. Required Return reflects Financing costs
[COTTR!]
Formula for NPV - answer
Formula & Definition for IRR - answerInternal Rate of Return is the Discount Rate
where... PV (Inflows) = PV (Outflows)
Payback Period & Discounted Payback Period
(Calculator Method) - answerInput CF's of a project. Click [NPV] and scroll down for
PPB and DPPB
Formula for Profitability Index of a Project - answer
Graph of NPV Profiles vs. Discount Rates - answerIntersects at IRR (where NPV = 0)
Advantages & Disadvantages of using IRR - answerPro: Better measure of margin of
profitability
Con: Projects can have multiple or no IRR
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