CFA Institute CFA-LEVEL-1 Exam Questions & Answers

Correct Answer: D

A disclaimer of opinion is a statement of inability to express an opinion.

Correct Answer: C

Partners will supply (50 x 7,500) = $375,000.

Correct Answer: D

The estimation of EPS for a stock market series involves five steps. Specifically, to determine an estimate of EPS for a stock market series, it is necessary to:

Estimate the sales per share Estimate next year's operating profit (EBIDT), or operating profit margin Estimate next year's depreciation per share Estimate next year's interest expense per share Estimate next year's corporate tax rate

Once estimates for these components have been determined, they are put into the following equation:

EPS for a stock market series = {[(Sales per share * operating profit margin) - depreciation per share interest expense per share] * (1 - corporate tax rate).

Imputing the given information into this equation will yield the following:

EPS for a stock market series = {[($340 * 0.50) - $50 - $68] * (1 - 0.35)} = $33.80

If you chose $83.80, remember that the depreciation figure is not added back to the EPS calculation. What we are looking at is an operating earnings after tax figure, not a cash-based figure.

If you chose $24.70, remember that common stock dividends are not incorporated into the EPS figure, only interest payments on debt and preferred securities.