Calculations Vs Rules in text

CFA Level II
#1

Hi All,

I’ve come across an item set on Intercorporate Investments namely a Consolidation v Prop v Equity question. The question asked which one one would have the highest/lowest/middle leverage.

Thinking about the table in Schweser which lists that ratios are generally better in equity method I decided off the whim without doing any calculations that the D/E would be better under Equity.

I was wrong however, in the answer it stated that the Equity account was greater under consolidation due to the minority interest so D/E was lowest?

In the real exam would we have conflicting scenario’s/tricks like this?

#2

I think you have overlooked Schezer notes.

It says that equity is the same for Equity method and propotionate, but for Acquisition Equity is higher.

However, in Equity method D is lower, so I think the impact is not straightforward. In Acquisity, You have higher Equity + higher Debt (than Equity), it’s hard to tell how that impace numerator and denominator generally.

#3

The table in schweser specifically states that leverage is less under the equity method. So are u saying always calculate in the exam?