Free Online CFA Level 1 Mock Exam 5

7. A company’s $100 par value preferred stock with a 15% annual dividend rate is currently priced at $112. The firm’s annual growth rate for the next 7 years is expected to be 5%. The cost of the company’s preferred stock is closest to:

A 13.4%.

B 14.1%.

C 15.0%.

Correct Answer: A

Answer Explanation:

rp = Dp / Pp = (100 x 0.15) / 112 = 13.4%

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8. A firm has fixed costs of USD 15,000, interest costs of USD 5,000, and taxes of USD 4,000. If the price per unit is USD 15 and the variable cost per unit is USD 7, the operating break-even point (per unit) is closest to:

A. 1000

B. 1875

C. 2500

Correct Answer: B

Answer Explanation:

Operating break-even per unit = Fixed cost / Contribution margin

Contribution margin = Price per unit – Variable cost per unit

Operating break-even = 15,000/(15 – 7) = 1,875 units

The operating break-even point is the number of units sold when the company’s operating income is zero. The break-even point is reached when the company is able to recover its variable and fixed costs. Financial break-even is the number of units sold when the company’s net income is zero. A company reaches the break-even point when it is able to recover all of its expenses.

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9. Which of the following committees is responsible for overseeing the integrity of a company’s financial reporting?

A. Audit committee.

B. Governance committee.

C. Risk committee.

Correct Answer: A

Answer Explanation:

The Board of Auditors is responsible for overseeing the integrity of financial reporting.

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