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Study Session 11: Corporate Finance: Leverage, Dividends and Share Repurchases, and Working Capital Management

CFA Questions

Are the EOCQ from CFA and the questions from CFA site really close and similar to the questions I should expect to face in exam day?

Because I`m also using when I have the time Mark Meldrum`s question bank and the questions on his QB are way harder than the one`s I face from CFA Official Material.

Can anybody confirm for me that in the exam day I should expect to face questions similar to the one`s in CFA Official Material?

Degree Of Financial Leverage

In page 138, example 2, the solution didn`t made any sense for me, where does 30 billion of operating income came from?

Question on magnifying effect of leverage

Hello everyone,

I’ve been studying “Reading #34 - Measures of Leverage” of L1, and I encountered the following statements near the end of chapter of the curriculum and Schweser, respectively:

GGM model

Hi there,

Suppose a company just paid dividends and its stock price now is 20 dollars. Company is going to pay dividends every year and the next dividend would be 90 cents and would grow at 2% rate after. Current risk premium is 6% and the risk-free rate is 4%. What is the implied beta of equity of this company? 

This is actually a question from my university. I thought it’s just a simple question about GGM model. But the solution is:

re = d1/p0 + g = 0.95/20 + 2% = 6.75%

Investing Activities?

In the Measures of Leverage topic, I can’t help but wonder why Investing Activities are not discussed at all, only business risk and financial risk are discussed. Does anyone know why investing activities aren’t part of the picture?

Computation of Risk Premium with Real Rate retur

Hi everyone,

I have a problem with Practice Questions 13 and 14 of Reading 39 (regarding computation of risk premium) and the errata published by the CFA. I don’t understand why they change the numerator with (1 + 0.080) whereas the formula in the curriculum seemed more consistent with the previous answer.  All the info are below (related to question 13) 

Financial and operating leverage

Statement 1: A company’s degree of financial leverage is different at different number of units produced and sold.

Statement 2: A company’s degree of operating leverage is different at different levels of operating earnings.

Which one(s) correct?

Operating break even

Rodgers, inc. has fixed operating expense of $2 million and will break even with sales of $5 million. For sales of $7 million, an analyst would estimate the firm’s operating income as:
A:$800,000
B:$1,200,000
C:$2,000,000

Does anybody know how to solve it? thank you!