Q-Bank 4/3

CFA Level II
#1

With respect to capital budgeting and measuring net present value, to avoid biases from an increase in expected inflation, an analyst should revise: A) weighted average cost of capital (WACC) down and cash flows up. B) both weighted average cost of capital (WACC) and cash flows down. C) both weighted average cost of capital (WACC) and cash flows up. D) weighted average cost of capital (WACC) up and cash flows down.

#2

D sounds good for the day.

#3

Wouldn’t that cause your NPV to be understated? I would assume you need to readjust your cash flows up to meet expected inflation and do the same with WACC. C

#4

You know what, you are right. I change to C. (I can do that you know)

#5

C With inflation, cash flows will go up in nominal terms

#6

pretty easy question

#7

And the answer is C. I’ll toughen it up for you folks.

#8

C’mon Pinkerton - that playing hookie yesterday and subsequent beers at Wrigley must be f*cking with your head. I remember that question from level 1…and I think I got it right.

#9

That does it. I’m through posting questions. Pinkman out.