Free CFA Level I Corporate Issuers Practice Questions
Corporate issuers on the CFA Level I exam tests corporate governance, capital structure decisions, working capital management, and cost of capital estimation. Weighted 6-9% (CFA Institute).
Sample Questions
Question 1
Easy
A poison pill is best described as a corporate governance provision that:
Solution
C is correct. A poison pill (shareholder rights plan) is a takeover defense that, once triggered by a hostile party crossing a defined ownership threshold, dilutes that bidder's stake by giving all other shareholders the right to buy additional shares at a discount. This makes the takeover prohibitively expensive and is intended to push a bidder to negotiate with the board rather than proceed unilaterally.
Question 2
Medium
A project's net present value (NPV) represents:
Solution
A is correct.
NPV is calculated by discounting all expected future cash flows at the required rate of return and subtracting the initial investment. A positive NPV means the project adds value to the firm.
NPV is calculated by discounting all expected future cash flows at the required rate of return and subtracting the initial investment. A positive NPV means the project adds value to the firm.
Question 3
Hard
In the event of corporate liquidation, which of the following groups generally has the highest priority claim on the firm's assets?
Solution
C is correct. The standard liquidation waterfall pays senior secured debtholders first because their claims are backed by specific collateral and rank ahead of unsecured debt, subordinated debt, preferred equity, and common equity. Preferred shareholders are paid only after all debt claims are satisfied, and common shareholders receive only the residual (if any) after every senior claim has been paid in full.