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CFA Level 1 - Corporate Finance correctly answered 2023 10,87 €
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CFA Level 1 - Corporate Finance correctly answered 2023

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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...

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  • 15 de junio de 2023
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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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