#30, cost of interest = 0.5*30k*8.5% YTM on LTD. Does anyone know why they use 0.50 instead of 0.40? The vignette says they use 40% debt financing. Thanks. #41. We shld use beginning BV in calculating residual income, so I used the “clean surplus relation” working backward to get 2006 BV. However, in their answer key, they simply use the current year BV. Does anyone know why? Thanks. sleepy
Been covered extensively here. It was a typo. CFAI goofed
Hi smarshy thanks for your quick response. typo to #31 or to both? can you direct me to the threads? Thanks. sleepy
I took the mock this weekend and e-mailed CFA about those two questions. I’m glad to see others had the exact same issue. Althogh, shouldn’t the 40% be applied to both working capital investment and fixed capital investment for a total of $50K * 40%?
ptrick73 Wrote: ------------------------------------------------------- > I took the mock this weekend and e-mailed CFA > about those two questions. I’m glad to see others > had the exact same issue. Althogh, shouldn’t the > 40% be applied to both working capital investment > and fixed capital investment for a total of $50K * > 40%? Guess what, we not only have the same Q, but I did exactly what you did: applying 40% to both NWC and FCInv. Upon reading the answer key, I forced myself to remember to use only FCInv. It’ll be great if you can share what CFAI say when you get a reply. Thanks.
I’ll let you know, but I doubt they will answer. I e-mailed CFA about a question on the third sample exam all I got back was a reply saying they will forward my question on to the exam department. This was over a week ago.
I had the same issue…I mean are they going to fund the WC with fairy dust and hope?
What is reason to use YTM for LT debt instead of coupon rate to calculate interest expense? This seems to be level 1 material. But I forgot about it.
I think the current YTM would be the cost to you if you went out an issued debt, but I am not sure.
Thanks! I think you are right. Coupon rate is an out dated number. YTM reflects current situation.