CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 1

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 1

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 1

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

General10 MCQs

1. Vignette 1: Cost of Capital - Case Study: A company has market value of debt $200 million, preferred stock $50 million, and common equity $250 million. The cost of debt is 6%, cost of preferred is 8%, and cost of equity is 12%. What is the WACC? (Tax rate 30%)

A. WACC is the cost of equity onlyB. WACC is the cost of debt onlyC. WACC is the weighted average of the costs of debt, preferred, and common equityD. WACC is the risk-free rate

2. Calculate the after-tax cost of debt given a pre-tax cost of 6% and tax rate 30%.

A. After-tax cost of debt = 4.2%B. After-tax cost of debt = 6%C. After-tax cost of debt = 8%D. After-tax cost of debt = 12%

3. What weights should be used in WACC?

A. Book values should be usedB. Market values should be used only for equityC. Book values should be used for debtD. Market values should be used for all components

4. Compute the WACC using the given values.

A. 8.00%B. 8.48%C. 9.00%D. 8.20%

5. How is the cost of equity estimated?

A. The cost of equity is always the same as the cost of debtB. The cost of equity is the risk-free rateC. The cost of equity can be estimated using CAPM, DDM, or bond yield plus risk premiumD. The cost of equity is the same for all companies

General10 MCQs

6. Vignette 2: Cost of Capital - Case Study: A company has a beta of 1.2, risk-free rate of 3%, and market risk premium of 6%. What is the cost of equity using CAPM?

A. Re = Rf + β × RmB. Re = Rf + (Rm – Rf)C. Re = β × (Rm – Rf)D. Re = Rf + β × (Rm – Rf)

7. Calculate the cost of equity for the company.

A. 10.2%B. 9.6%C. 12.0%D. 8.4%

8. What does beta represent in CAPM?

A. Beta measures total riskB. Beta measures systematic risk relative to the marketC. Beta is constant over timeD. Beta is the same for all stocks

9. What is the market risk premium?

A. MRP = Rm × RfB. MRP = Rm / RfC. MRP = Rm – RfD. MRP = Rf – Rm

10. What is an appropriate proxy for the risk-free rate in CAPM?

A. The short-term Treasury bill rateB. The corporate bond yieldC. The prime rateD. The yield on long-term government bonds

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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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