CFA LEVEL II DISCOUNTED CASH FLOW EXAM - (88 QUESTIONS) UP-TO-DATE ACTUAL
EXAM QUESTIONS AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT
PDF DOWNLOAD
Examiner/Administrator: CFA Institute
Candidate Name: ____________________________
Candidate ID: _______________________________
Date: ______________________________________
Examination Centre: __________________________
Time Allowed: 180 Minutes
Total Questions: 88 (This section contains Questions 1–30)
Instructions to Candidates:
All questions are multiple-choice and based on item-set style vignette scenarios
consistent with professional financial analysis practice. Carefully read each scenario and
select the best answer from the options provided. Calculators are permitted. Show all
reasoning where applicable on rough sheets. Ensure answers are transferred correctly.
,There is no penalty for guessing. This section contains 30 questions out of approximately
88 total questions typical of this examination format.
Disclaimer:
This is an original simulated examination inspired by the structure and rigor of the CFA
Level II curriculum. It is intended solely for educational and practice purposes and does
not contain actual exam questions.
Core Competency Domains:
• Equity Valuation (DCF Models)
• Corporate Finance and Capital Budgeting
• Financial Statement Analysis
• Cost of Capital Estimation
• Free Cash Flow Modeling
• Terminal Value Estimation
• Sensitivity and Scenario Analysis
Introduction:
This assessment evaluates the candidate’s ability to apply discounted cash flow (DCF)
,techniques in valuing companies and projects. Emphasis is placed on interpreting
financial statements, forecasting cash flows, estimating discount rates, and assessing
intrinsic value. Candidates are expected to demonstrate analytical rigor and practical
judgment in applying valuation frameworks across diverse scenarios.
Q1.
A financial analyst is valuing a firm using a two-stage FCFF model. The firm’s FCFF is
expected to grow at 12% annually for the next 4 years and then stabilize at 4%. The
current FCFF is $50 million, and the WACC is 10%. What is the approximate terminal value
at the end of year 4?
A. $850 million
B. $975 million
C. $1,040 million
D. $1,125 million
Correct Answer: 🔴 C. $1,040 million
Explanation: 🟡 Terminal value = FCFF₅ / (WACC − g). FCFF₅ = 50 × (1.12⁴) × 1.04 ≈ 72.3.
TV = 72.3 / (0.10 − 0.04) ≈ 1,205 → discounted back ≈ 1,040. A and B underestimate growth
effects; D overestimates due to misapplication of discounting.
, Q2.
An analyst incorrectly uses net income instead of FCFE in a DCF model. What is the most
likely consequence?
A. Overvaluation if leverage increases
B. Undervaluation if depreciation is high
C. Misstatement due to ignoring reinvestment needs
D. No impact if dividends are stable
Correct Answer: 🔴 C. Misstatement due to ignoring reinvestment needs
Explanation: 🟡 Net income ignores reinvestment (CapEx, working capital), leading to
inaccurate valuation. A is conditional, B incomplete, D incorrect because dividends do not
equal FCFE necessarily.
Q3.
A company has increasing working capital needs. What is the impact on FCFF?
A. FCFF increases
B. FCFF decreases
C. No impact
D. Only affects FCFE
EXAM QUESTIONS AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT
PDF DOWNLOAD
Examiner/Administrator: CFA Institute
Candidate Name: ____________________________
Candidate ID: _______________________________
Date: ______________________________________
Examination Centre: __________________________
Time Allowed: 180 Minutes
Total Questions: 88 (This section contains Questions 1–30)
Instructions to Candidates:
All questions are multiple-choice and based on item-set style vignette scenarios
consistent with professional financial analysis practice. Carefully read each scenario and
select the best answer from the options provided. Calculators are permitted. Show all
reasoning where applicable on rough sheets. Ensure answers are transferred correctly.
,There is no penalty for guessing. This section contains 30 questions out of approximately
88 total questions typical of this examination format.
Disclaimer:
This is an original simulated examination inspired by the structure and rigor of the CFA
Level II curriculum. It is intended solely for educational and practice purposes and does
not contain actual exam questions.
Core Competency Domains:
• Equity Valuation (DCF Models)
• Corporate Finance and Capital Budgeting
• Financial Statement Analysis
• Cost of Capital Estimation
• Free Cash Flow Modeling
• Terminal Value Estimation
• Sensitivity and Scenario Analysis
Introduction:
This assessment evaluates the candidate’s ability to apply discounted cash flow (DCF)
,techniques in valuing companies and projects. Emphasis is placed on interpreting
financial statements, forecasting cash flows, estimating discount rates, and assessing
intrinsic value. Candidates are expected to demonstrate analytical rigor and practical
judgment in applying valuation frameworks across diverse scenarios.
Q1.
A financial analyst is valuing a firm using a two-stage FCFF model. The firm’s FCFF is
expected to grow at 12% annually for the next 4 years and then stabilize at 4%. The
current FCFF is $50 million, and the WACC is 10%. What is the approximate terminal value
at the end of year 4?
A. $850 million
B. $975 million
C. $1,040 million
D. $1,125 million
Correct Answer: 🔴 C. $1,040 million
Explanation: 🟡 Terminal value = FCFF₅ / (WACC − g). FCFF₅ = 50 × (1.12⁴) × 1.04 ≈ 72.3.
TV = 72.3 / (0.10 − 0.04) ≈ 1,205 → discounted back ≈ 1,040. A and B underestimate growth
effects; D overestimates due to misapplication of discounting.
, Q2.
An analyst incorrectly uses net income instead of FCFE in a DCF model. What is the most
likely consequence?
A. Overvaluation if leverage increases
B. Undervaluation if depreciation is high
C. Misstatement due to ignoring reinvestment needs
D. No impact if dividends are stable
Correct Answer: 🔴 C. Misstatement due to ignoring reinvestment needs
Explanation: 🟡 Net income ignores reinvestment (CapEx, working capital), leading to
inaccurate valuation. A is conditional, B incomplete, D incorrect because dividends do not
equal FCFE necessarily.
Q3.
A company has increasing working capital needs. What is the impact on FCFF?
A. FCFF increases
B. FCFF decreases
C. No impact
D. Only affects FCFE
