Test Prep CFA® Level II Chartered Financial Analyst CFA® Level 2 Dumps in PDF

Lauren Jacobs, CFA, is an equity analyst for DF Investments. She is evaluating Iron Parts Inc. Iron Parts is a manufacturer of interior systems and components for automobiles. The company is the world's second largest original equipment auto parts supplier, with a market capitalization of $1.8 billion. Based on Iron Parts's low price-to-book value ratio of 0.9* and low price-to-sales ratio of 0.15x, Jacobs believes the stock could be an interesting investment. However, she wants to review the disclosures found in the company's financial footnotes. In particular, Jacobs is concerned about Iron Parts's defined benefit pension plan. The following information for 2007 and 2008 is provided.


Iron Parts has adopted SFAS No. 158, Employers' Accounting for Defined Benefit Pensions and Other Postretirement Plans.
Jacobs wants to fully understand the impact of changing pension assumptions on Iron Parts's balance sheet and income statement. In addition, she would like to compute Iron Parts's economic pension expense.

For the year ended December 31, 2008, Iron Parts's economic pension expense is closest to:

Carl Warner, CFA, has been asked to review the financial information of Global Drug World (GDW) in preparation for a possible takeover bid by rival competitor Consolidated Drugstores International (Consolidated). GDW has produced impressive results since going public via an initial public offering in 1998. Through a program of aggressive growth by acquisition, GDW is currently seen as a major player and a threat to Consolidated^ own plans for growth and profitability. In preparation for his analysis, Warner has gathered the following financial data from GDW's year-end statements:

Partial GDW Balance Sheet on May 31, 2008






As part of his analysis, Warner needs to forecast the free cash flow to the firm (FCFF) for 2009. The best information he has points to an increase in sales of 6%. The earnings before interest and tax (EBIT) margin is not expected to change from the rate of 6.4% achieved in 2008. Additional fixed capital spending is expected to be $36,470. Investment in net working capital is expected to be $24,313. Moreover, Warner notes that the only noncash charge is depreciation, which he estimates will be $60,000.

Warner has been asked to analyze the effect each of the following corporate events, if taken during 2009, would have on GDW's free cash flow to equity (FCFE):
• 20% increase in dividends per share.
• Repurchase of 25% of the firm's outstanding shares using cash.
• New common share offering that would increase shares outstanding by 30%.
• New issue of convertible bonds that are not callable for fi\e years and would increase the level of debt by 10%.

The 2008 free cash flow to the firm (FCFF) for Global Drug World (GDW) in dollars is closest to:

Carl Warner, CFA, has been asked to review the financial information of Global Drug World (GDW) in preparation for a possible takeover bid by rival competitor Consolidated Drugstores International (Consolidated). GDW has produced impressive results since going public via an initial public offering in 1998. Through a program of aggressive growth by acquisition, GDW is currently seen as a major player and a threat to Consolidated^ own plans for growth and profitability. In preparation for his analysis, Warner has gathered the following financial data from GDW's year-end statements:

Partial GDW Balance Sheet on May 31, 2008






As part of his analysis, Warner needs to forecast the free cash flow to the firm (FCFF) for 2009. The best information he has points to an increase in sales of 6%. The earnings before interest and tax (EBIT) margin is not expected to change from the rate of 6.4% achieved in 2008. Additional fixed capital spending is expected to be $36,470. Investment in net working capital is expected to be $24,313. Moreover, Warner notes that the only noncash charge is depreciation, which he estimates will be $60,000.

Warner has been asked to analyze the effect each of the following corporate events, if taken during 2009, would have on GDW's free cash flow to equity (FCFE):
• 20% increase in dividends per share.
• Repurchase of 25% of the firm's outstanding shares using cash.
• New common share offering that would increase shares outstanding by 30%.
• New issue of convertible bonds that are not callable for fi\e years and would increase the level of debt by 10%.

By how much (in dollars) does GDW's FCFF exceed its free cash flow to equity (FCFE) in 2008?

Carl Warner, CFA, has been asked to review the financial information of Global Drug World (GDW) in preparation for a possible takeover bid by rival competitor Consolidated Drugstores International (Consolidated). GDW has produced impressive results since going public via an initial public offering in 1998. Through a program of aggressive growth by acquisition, GDW is currently seen as a major player and a threat to Consolidated^ own plans for growth and profitability. In preparation for his analysis, Warner has gathered the following financial data from GDW's year-end statements:

Partial GDW Balance Sheet on May 31, 2008






As part of his analysis, Warner needs to forecast the free cash flow to the firm (FCFF) for 2009. The best information he has points to an increase in sales of 6%. The earnings before interest and tax (EBIT) margin is not expected to change from the rate of 6.4% achieved in 2008. Additional fixed capital spending is expected to be $36,470. Investment in net working capital is expected to be $24,313. Moreover, Warner notes that the only noncash charge is depreciation, which he estimates will be $60,000.

Warner has been asked to analyze the effect each of the following corporate events, if taken during 2009, would have on GDW's free cash flow to equity (FCFE):
• 20% increase in dividends per share.
• Repurchase of 25% of the firm's outstanding shares using cash.
• New common share offering that would increase shares outstanding by 30%.
• New issue of convertible bonds that are not callable for fi\e years and would increase the level of debt by 10%.

The cost of equity and the sustainable growth rate (using beginning equity) are closest to:
Cost of equity Sustainable growth rate

Carl Warner, CFA, has been asked to review the financial information of Global Drug World (GDW) in preparation for a possible takeover bid by rival competitor Consolidated Drugstores International (Consolidated). GDW has produced impressive results since going public via an initial public offering in 1998. Through a program of aggressive growth by acquisition, GDW is currently seen as a major player and a threat to Consolidated^ own plans for growth and profitability. In preparation for his analysis, Warner has gathered the following financial data from GDW's year-end statements:

Partial GDW Balance Sheet on May 31, 2008






As part of his analysis, Warner needs to forecast the free cash flow to the firm (FCFF) for 2009. The best information he has points to an increase in sales of 6%. The earnings before interest and tax (EBIT) margin is not expected to change from the rate of 6.4% achieved in 2008. Additional fixed capital spending is expected to be $36,470. Investment in net working capital is expected to be $24,313. Moreover, Warner notes that the only noncash charge is depreciation, which he estimates will be $60,000.

Warner has been asked to analyze the effect each of the following corporate events, if taken during 2009, would have on GDW's free cash flow to equity (FCFE):
• 20% increase in dividends per share.
• Repurchase of 25% of the firm's outstanding shares using cash.
• New common share offering that would increase shares outstanding by 30%.
• New issue of convertible bonds that are not callable for fi\e years and would increase the level of debt by 10%.

The 2009 estimate of FCFF is closest to: