CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 3

Practice CFA 2026 Level II Vignettes Corporate Finance MCQs from Cost of Capital. Get instant results with Explanation.

General10 MCQs

1. Vignette 5: Cost of Capital - Case Study: A company is issuing new equity to finance a project and incurs flotation costs of 5% of the proceeds. How should flotation costs be treated in the project analysis?

A. Flotation costs are ignored in capital budgetingB. Flotation costs are always added to the cost of equityC. Flotation costs are subtracted from the cost of debtD. Flotation costs increase the cost of capital and can be included by adjusting the project cash flows

2. What is the marginal cost of capital?

A. The cost of the next dollar of new capitalB. The cost of existing capitalC. The average cost of all capital raisedD. The cost of equity only

3. How does the marginal cost of capital behave as a company raises more funds?

A. MCC is constant regardless of the amount raisedB. MCC generally increases as more capital is raised (upward sloping)C. MCC decreases as more capital is raisedD. MCC is not related to the amount of capital raised

4. What weights should be used in WACC for capital budgeting?

A. Use book value weightsB. Use historical weightsC. Use target market value weightsD. Use the weights of the last financing round

5. What discount rate should be used for a project with different risk than the company?

A. Always use the company's WACCB. Always use the cost of equityC. Always use the cost of debtD. Use the company's WACC only if the project has the same risk as the company

General10 MCQs

6. Vignette 6: Cost of Capital - Case Study: A company is considering entering a new industry. How can it estimate the cost of capital for the project?

A. Pure-play method uses the company's own betaB. Pure-play method uses the beta of a comparable company and adjusts for leverageC. Pure-play method uses the industry average betaD. Pure-play method uses the risk-free rate

7. How do you unlever a beta?

A. β_u = β_L × [1 + (1 – T) × (D/E)]B. β_u = β_L × [1 + (1 – T) × (E/D)]C. β_u = β_L / [1 + (1 – T) × (D/E)]D. β_u = β_L – (1 – T) × (D/E)

8. How do you lever a beta for a project?

A. β_L = β_u × [1 + (1 – T) × (D/E)]B. β_L = β_u / [1 + (1 – T) × (D/E)]C. β_L = β_u × [1 + (1 – T) × (E/D)]D. β_L = β_u + (1 – T) × (D/E)

9. What is country risk premium?

A. Country risk is the same as market riskB. Country risk is only relevant for government bondsC. Country risk is always zero for developed marketsD. Country risk is an additional premium for emerging market investments

10. Why is the cost of capital important in corporate finance?

A. Cost of capital is only used for debt pricingB. Cost of capital is a critical input for valuation and investment decisionsC. Cost of capital is not important for equity valuationD. Cost of capital is the same as the discount rate for all projects

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Conducting Body: CFA Institute

Frequency: 4 times a year (February, May, August, November) | Time: 135 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 90 MCQs):

Alternative Investments: 8 MCQs
Corporate Issuers: 7 MCQs
Derivatives: 5 MCQs
Economics: 7 MCQs
Equity Investments: 12 MCQs
Ethics: 16 MCQs
Financial Statement Analysis: 11 MCQs
Fixed Income: 11 MCQs
Portfolio Management: 9 MCQs
Quant Methods: 6 MCQs

Merit Formula: -

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