CFA-Institute CFA-Level-II Exam Dumps

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.The capital gain for the U.S. investor in Tryssen stock and the dividend after adjusting for thewithholding tax but before the tax credit are closest to:Capital gain Adjusted dividend

Galena Petrovich, CFA, is an analyst in the New York office of TRS Investment Management, Inc.Petrovich is an expert in the industrial electrical equipment sector and is analyzing Fisher Global.Fisher is a global market leader in designing, manufacturing, marketing, and servicing electricalsystems and components, including fluid power systems and automotive engine air managementsystems.Fisher has generated double-digit growth over the past ten years, primarily as the result ofacquisitions, and has reported positive net income in each year. Fisher reports its financial resultsusing International Financial Reporting Standards (IFRS).Petrovich is particularly interested in a transaction that occurred seven years ago, before the changein accounting standards, in which Fisher used the pooling method to account for a large acquisitionof Dartmouth Industries, an industry competitor. She would like to determine the effect of using thepurchase method instead of the pooling method on the financial statements of Fisher. Fisherexchanged common stock for all of the outstanding shares of Dartmouth.Fisher also has a 50% ownership interest in a joint venture with its major distributor, a U.S. companycalled Hydro Distribution. She determines that Fisher has reported its ownership interest under theproportioned consolidation method, and that the joint venture has been profitable since it wasestablished three years ago. She decides to adjust the financial statements to show how the financialstatements would be affected if Fisher had reported its ownership under the equity method. Fisher isalso considering acquiring 80% to 100% of Brown and Sons Company. Petrovich must consider theeffect of such an acquisition on Fisher's financial statements.Petrovich determines from the financial statement footnotes that Fisher reported an unrealized gainin its most recent income statement related to debt securities that are designated at fair value.Competitor firms following U.S. GAAP classify similar debt securities as available-for-sale.Finally, Petrovich finds a reference in Fisher's footnotes regarding a special purpose entity (SPE).Fisher has reported its investment in the SPE using the equity method, but Petrovich believes thatthe consolidation method more accurately reflects Fisher's true financial position, so she makes theappropriate adjustments to the financial statements.Regarding the goodwill on the acquisition of Brown and Sons being considered by Fisher Global,which of the following statements is correct?

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. One possibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which of the following represents a correct advantage and a correct disadvantage for the indicatedapproach that is aimed at reducing execution costs?

Galena Petrovich, CFA, is an analyst in the New York office of TRS Investment Management, Inc.Petrovich is an expert in the industrial electrical equipment sector and is analyzing Fisher Global.Fisher is a global market leader in designing, manufacturing, marketing, and servicing electricalsystems and components, including fluid power systems and automotive engine air managementsystems.Fisher has generated double-digit growth over the past ten years, primarily as the result ofacquisitions, and has reported positive net income in each year. Fisher reports its financial resultsusing International Financial Reporting Standards (IFRS).Petrovich is particularly interested in a transaction that occurred seven years ago, before the changein accounting standards, in which Fisher used the pooling method to account for a large acquisitionof Dartmouth Industries, an industry competitor. She would like to determine the effect of using thepurchase method instead of the pooling method on the financial statements of Fisher. Fisherexchanged common stock for all of the outstanding shares of Dartmouth.Fisher also has a 50% ownership interest in a joint venture with its major distributor, a U.S. companycalled Hydro Distribution. She determines that Fisher has reported its ownership interest under theproportioned consolidation method, and that the joint venture has been profitable since it wasestablished three years ago. She decides to adjust the financial statements to show how the financialstatements would be affected if Fisher had reported its ownership under the equity method. Fisher isalso considering acquiring 80% to 100% of Brown and Sons Company. Petrovich must consider theeffect of such an acquisition on Fisher's financial statements.Petrovich determines from the financial statement footnotes that Fisher reported an unrealized gainin its most recent income statement related to debt securities that are designated at fair value.Competitor firms following U.S. GAAP classify similar debt securities as available-for-sale.Finally, Petrovich finds a reference in Fisher's footnotes regarding a special purpose entity (SPE).Fisher has reported its investment in the SPE using the equity method, but Petrovich believes thatthe consolidation method more accurately reflects Fisher's true financial position, so she makes theappropriate adjustments to the financial statements.Had Fisher Global reported its investment in the joint venture under the equity method rather thanunder the proportionate consolidation method, it is most likely that:

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which of the following combinations best describes the four most important execution costs inincreasing order of estimation reliability?

Galena Petrovich, CFA, is an analyst in the New York office of TRS Investment Management, Inc.Petrovich is an expert in the industrial electrical equipment sector and is analyzing Fisher Global.Fisher is a global market leader in designing, manufacturing, marketing, and servicing electricalsystems and components, including fluid power systems and automotive engine air managementsystems.Fisher has generated double-digit growth over the past ten years, primarily as the result ofacquisitions, and has reported positive net income in each year. Fisher reports its financial resultsusing International Financial Reporting Standards (IFRS).Petrovich is particularly interested in a transaction that occurred seven years ago, before the changein accounting standards, in which Fisher used the pooling method to account for a large acquisitionof Dartmouth Industries, an industry competitor. She would like to determine the effect of using thepurchase method instead of the pooling method on the financial statements of Fisher. Fisherexchanged common stock for all of the outstanding shares of Dartmouth.Fisher also has a 50% ownership interest in a joint venture with its major distributor, a U.S. companycalled Hydro Distribution. She determines that Fisher has reported its ownership interest under theproportioned consolidation method, and that the joint venture has been profitable since it wasestablished three years ago. She decides to adjust the financial statements to show how the financialstatements would be affected if Fisher had reported its ownership under the equity method. Fisher isalso considering acquiring 80% to 100% of Brown and Sons Company. Petrovich must consider theeffect of such an acquisition on Fisher's financial statements.Petrovich determines from the financial statement footnotes that Fisher reported an unrealized gainin its most recent income statement related to debt securities that are designated at fair value.Competitor firms following U.S. GAAP classify similar debt securities as available-for-sale.Finally, Petrovich finds a reference in Fisher's footnotes regarding a special purpose entity (SPE).Fisher has reported its investment in the SPE using the equity method, but Petrovich believes thatthe consolidation method more accurately reflects Fisher's true financial position, so she makes theappropriate adjustments to the financial statements.Regarding the prior purchase that was accounted for under the pooling of interests method, hadFisher Global reported this purchase under the acquisition method:

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which of the following alternatives best describes the main benefits of ETFs?

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which of the following alternatives best describes the main benefits of ETFs?

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays adividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which of the following best describes a comparative advantage of a price-driven system over anorder-driven system?

Martin Hagemann, CFA, works for a large brokerage firm in Frankfurt, Germany. Hagemann has beenhired by Tryssen AG, a global research-based company that is preparing to go public after a longhistory of operating privately. The need to raise substantial amounts of capital to fund research anddevelopment activities is seen as the key motivation for the change in policy. Tryssen is engaged inthe discovery, development, manufacture, marketing, and sale of medical products.Hagemann's first task is to recommend an exchange upon which Tryssen stock can be traded. Onepossibility is the Deutsche Bourse. The Deutsche Bourse operates primarily as a continuous orderdriven system. Another alternative that Tryssen is considering is to list on a different exchange thatoperates as a price-driven system.As an alternative, Tryssen may choose to list as an American Depository Receipt (ADR). ADRs arenegotiable U.S. securities that usually represent a non-U.S. based company's publicly traded equity.Although typically denominated in U.S. dollars, depository receipts can also be denominated ineuros. Depository receipts can be eligible to trade on all U.S. stock exchanges as well as on manyEuropean stock exchanges.The increasing demand for depository receipts is driven by the desire of individual and institutionalinvestors to diversify their portfolios, reduce risk and invest internationally in the most efficientmanner possible. While most investors recognize the benefits of global diversification, there aremany challenges presented when investing directly in local trading markets. Obstacles can includeinefficient trade settlements, uncertain custody services, and costly currency conversions. Depositoryreceipts overcome many of the inherent operational and custodial hurdles inherent in internationalinvesting. Tryssen has decided to access the U.S. market by involving itself in an ADR program.Tryssen has decided to save itself a lot of trouble, however, by not complying with SEC registrationand reporting requirements.As an alternative to ADRs, investors interested in increasing their exposure to internationalinvestments can choose to acquire exchange traded funds (ETFs). Hagemann researches theadvantages and disadvantages of ETFs.Execution costs are always a concern, and perhaps even more so for international investors. At thepresent time, Tryssen AG is most concerned with how reliably it can estimate trading costs. As part ofthe cost estimation process, Hagemann is asked to provide a report on the advantages anddisadvantages of techniques used to reduce execution costs.Trysse AG proceeds to list on the Frankfurt exchange, and a U.S. affiliate of Hagemann's companystarts to aggressively promote the stock. A U.S. investor buys 200 shares of Tryssen at a price of €20per share. At time of purchase, the exchange rate is €1 = $1.15. One month later Tryssen pays a dividend of €0.25 per share, and investors are subject to a withholding tax of 20%. The U.S. investoris eligible to claim a tax credit of $0.06 per share. At the time the dividend was paid, the shares hadjumped to €24 each and the U.S. dollar had weakened to €1 = $ 1.20. The shares were sold just afterthe dividend was paid.Which type of ADR is Tryssen most likely to undertake?

Henke Malfoy, CFA, is an analyst with a major manufacturing firm. Currently, he is evaluating thereplacement of some production equipment. The old machine is still functional and could continueto serve in its current capacity for three more years. Tf the new equipment is purchased, the oldequipment (which is fully depreciated) can be sold for $50,000. The new equipment will cost$400,000, including shipping and installation. If the new equipment is purchased, the company'srevenues will increase by $175,000 and costs by $25,000 for each year of the equipment's 3-year life.There is no expected change in net working capital.The new machine will be depreciated using a 3-year MACRS schedule (note: the 3-year MACRSschedule is 33.0% in the first year, 45% in the second year, 15% in the third year, and 7% in the fourthyear). At the end of the life of the new equipment (i.e., in three years), Malfoy expects that it can besold for $10,000. The firm has a marginal tax rate of 40%, and the cost of capital on this project is20%. In calculation of tax liabilities, Malfoy assumesthat the firm is profitable,so any losses on thisproject can be offset against profits elsewhere in the firm. Malfoy calculates a project NPV of-$62,574.What isthe IRR based on Malfoy's NPV estimate, and should the project be accepted orrejected inorderto maximize shareholder value?IRR Project

Henke Malfoy, CFA, is an analyst with a major manufacturing firm. Currently, he is evaluating thereplacement of some production equipment. The old machine is still functional and could continueto serve in its current capacity for three more years. Tf the new equipment is purchased, the oldequipment (which is fully depreciated) can be sold for $50,000. The new equipment will cost$400,000, including shipping and installation. If the new equipment is purchased, the company'srevenues will increase by $175,000 and costs by $25,000 for each year of the equipment's 3-year life.There is no expected change in net working capital.The new machine will be depreciated using a 3-year MACRS schedule (note: the 3-year MACRSschedule is 33.0% in the first year, 45% in the second year, 15% in the third year, and 7% in the fourthyear). At the end of the life of the new equipment (i.e., in three years), Malfoy expects that it can besold for $10,000. The firm has a marginal tax rate of 40%, and the cost of capital on this project is20%. In calculation of tax liabilities, Malfoy assumesthat the firm is profitable,so any losses on thisproject can be offset against profits elsewhere in the firm. Malfoy calculates a project NPV of-$62,574.Suppose forthis question only that Malfoy hasforgotten to reflect a decrease in inventory that willresult at the beginning of the project. The most likely effect on estimated project NPV of this error:

Henke Malfoy, CFA, is an analyst with a major manufacturing firm. Currently, he is evaluating thereplacement of some production equipment. The old machine is still functional and could continueto serve in its current capacity for three more years. Tf the new equipment is purchased, the oldequipment (which is fully depreciated) can be sold for $50,000. The new equipment will cost$400,000, including shipping and installation. If the new equipment is purchased, the company'srevenues will increase by $175,000 and costs by $25,000 for each year of the equipment's 3-year life.There is no expected change in net working capital.The new machine will be depreciated using a 3-year MACRS schedule (note: the 3-year MACRSschedule is 33.0% in the first year, 45% in the second year, 15% in the third year, and 7% in the fourthyear). At the end of the life of the new equipment (i.e., in three years), Malfoy expects that it can besold for $10,000. The firm has a marginal tax rate of 40%, and the cost of capital on this project is20%. In calculation of tax liabilities, Malfoy assumesthat the firm is profitable,so any losses on thisproject can be offset against profits elsewhere in the firm. Malfoy calculates a project NPV of-$62,574.What is the effect of taxes on the operating cash flow in year 2?

The board members for Kazmaier Foods have gathered for their quarterly board of directors meeting.Presiding at the meeting is the Chairman and CEO for Kazmaier, Phil Hinesman. The other eight members of the board are also present, including Allen Kazmaier, the brother of Kazmaier's founder; Elaine Randall, Executive Vice President for Emerald Bank, which Kazmaier uses to obtain short-term financing; and Bill Schram, Kazmaier's President and Chief Operating Officer. Each of the directors was elected to serve on the board for a 4-yearterm. They were elected two at a time overthe past three years. With the exception of Hinesman, Allen Kazmaier, Randall, and Schram, board members had no ties to Kazmaier prior to joining the board and had no personal relationships with management. In addition to the regular board meetings, the five independent board members get together annually, in a meeting separate from the regular board meetings, to discuss the company's operations.Item 1 on the board meeting agenda is a discussion about the importance of corporate governance and how Kazmaier can improve its corporate governance system. Hinesman begins the discussion by saying, "A strong system of corporate governance is important to ourshareholders. Studies have shown that, on average, companies with strong corporate governance systems have higher measures of profitability than companies with weak corporate governance systems." Randall adds her comment to the discussion: "The lack of an effective corporate governance system increases risk for our investors. If we do not have the appropriate checks and balancesin place, ourinvestors may be exposed to the risk that information used to make decisions about our firm is misleading or incomplete, as well as the risk that mergers or acquisitions the firm enters into will benefit management at the expense of shareholders."After a lengthy discussion, the board agrees on five separate recommendations that will enhance its currentsystem of corporate governance. One of these recommendationsisto change the functionand  tructure of the board's audit committee. Currently the audit committee consists of MatthewBortz, David Smith, and Ann Williams—three independent directors who each have backgrounds infinance and accounting. The board agrees that one more member should be added to the committeeand that the committee should expand itslist of responsibilities.Item 2 on the agenda for the board of directors' meeting is a report from Kazmaicr's Chief FinancialOfficer, Doug Layman. The following information was included in the material that was distributed toeach board member before the meeting:Currentshare price: $40.00Shares outstanding: 56, 250,000Estimated earnings: $112.5 millionPlanned capital spending: $150 millionTarget debt-to-equity ratio 1 to ICost of equity: 8.0%Constant growth rate: 5.2%Layman tells the board that his analysis indicates that, based on a constant-growth dividend discountmodel, the initiation of an $0.80 pershare dividend would reduce the cost of equity by 1.2% andincrease the value of the firm'sstock, assuming that earnings, the cost of debt, and the constantgrowth rate don't change.Item 3 on the agenda is the sale of Kazmaier's condiment packaging division to Sautter Packaging andSupply Company. Layman believesthe sale will net the company $50 million, payable in cash. Afterdiscussing the pros and cons ofselling the division, the directors agree that the sale is in the bestinterests of the company and its shareholders. The directors then move to a vote, and the sale of thecondiment packaging division is approved unanimously. The committee then moves on to discusswhat to do with the proceeds from the sale. Williams suggeststhat paying out the $50 million toshareholders as a special dividend would continue to give the firm flexibility in how it uses its excesscash. Smith tellsthe board that a share repurchase can be thought of as an alternative to a cashdividend, and that if the tax treatment between the two alternatives is the same, investors should beindifferent between the two. After debating the merits ofspecial dividends and stock repurchases,Kazmaier's board authorizesthe proceeds from the sale of the condiment packaging division to beused for the purchase of $50 million worth of outstanding shares.An external agency recently included Kazmaier in a review of corporate governance systems todetermine whether or not the structure of the board of directors was consistent with corporategovernance best practices. The agency scored companies based on the following criteria:Criterion 1: Composition of the board of directors.Criterion 2: Chairman of the board of directors.Criterion 3; Method of electing the board.Criterion 4: Frequency of separate sessions for independent directors.Each of the four criteria was weighted equally, with the firm receiving a positive mark for being incompliance with corporate governance best practice.A month after the board meeting, the price of Kazmaier stock is still at $40 per share, and the sale ofKazmaier's condiment packaging division does not go through. In orderto finance the approvedshare repurchase, Kazmaier isforced to borrow funds. Schram states, "I am concerned that the costofthe debt used to repurchase shares may cause a reduction in earnings pershare." Jennifer Nagy, a vice president in Kazmaier's finance division, tells Schram not to be concerned aboutusing debt to finance the share repurchase because the rationale behind the repurchase is sound.Nagy then writes down some of the common rationales for share repurchases and hands them to Schram.Rationale 1: Repurchasing shares can prevent the EPS dilution that comesfrom the exercise of employee stock options.Rationale 2: Management can use a share repurchase to alter the company's capital structure by decreasing the percentage of equity.Rationale 3: Like a dividend increase, a share repurchase is a way to send a signal to investors thatKazmaier's management believes the outlook for the company's future is strong.Kazmaier's total score on the corporate governance report is closest to

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.Which of the following items, when recognized, will likely increase:PBO? Pension expense?

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.What are the likely effects of the required change in accounting for SPEs on Samilski's:Return on assets? Return on equity?

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.Under current U.S. GAAP pension accounting standards, the amount of the pension asset or liabilitythat Samilski should report on its 2009 fiscal year end balance sheet is closes/ to a:

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.Based on Carson's projections of the discount rate, what are the likely effects on the projectedbenefit obligation (PBO) and the pension cost?

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.Under current U.S. GAAP pension accounting standards, the amount of the pension asset or liabilitythat Samilski should report on its 2009 fiscal year end balance sheet is closes/ to a:

Andrew Carson is an equity analyst employed at Lee, Vincent, and Associates, an investmentresearch firm. In a conversation with his supervisor, Daniel Lau, Carson makes the following twostatements about defined contribution plans.Statement I: Employers often face onerous disclosure requirements.Statement 2: Employers often bear all the investment risk.Carson is responsible for following Samilski Enterprises (Samilski), a publicly traded firm thatproduces motorcycles and other mechanical parts. It operates exclusively in the United States. At theend of its 2009 fiscal year, Samilski's employee pension plan had a projected benefit obligation (PBO)of $320 million. Also, unrecognized prior service costs were $35 million, the fair value of plan assetswas $316 million, and the unrecognized actuarial gain was $21 million.Carson believes the rate of compensation increase will be 5% as opposed to 4% in the previous year,and the discount rate will be 7% as opposed to 8% in the previous year.This past year, Samilski began using special purpose entities (SPEs) for various reasons. Inpreparation for analyzing the SPE disclosures in the footnotes to the financial statements, Carsonprepares a memo on SPEs. In the memo, he correctly concludes that the company will be requiredunder new accounting rules to classify them as variable interest entities (VIE) and consolidate theentities on the balance sheet rather than report them using the equity method as in the past.Is Carson correct with respect to defined contribution plans?

Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation atthe request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings invarious industries. Specifically, Stephenson is interested in the effects of Iberia's investments on itsfinancial performance and has decided to focus on two investments: Midland Incorporated andOdessa Company.Midland IncorporatedOn December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for €80million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia'sinvestment in Midland was €89 million at the end of 2008 and €85 million at the end of 2009. For theyear ended 2008, Midland reported net income of €30 million and paid dividends of €10 million. Forthe year ended 2009, Midland reported a loss of €5 million and paid dividends of €4 million.During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold allof the goods to a third party in 2010.Odessa CompanyOn January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-terminvestment. The purchase price was €20 per share and on December 31, 2009, the market price ofOdessa was €17 per share. The decline in value was considered temporary. For the year ended 2009,Odessa reported net income of €750 million and paid a dividend of €3 per share. Iberia considers itsinvestment in Odessa as an investment in financial assets.In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him todraft a report on accounting methods and ratio analysis. The following are statements fromStephenson's research report.Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account forjoint ventures.Statement 2: In general, if the parent's consolidated net income is positive, the equity methodreports a higher net profit margin than the acquisition method.Is Stephenson's statement regarding the effect on profit margin correct?

Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation atthe request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings invarious industries. Specifically, Stephenson is interested in the effects of Iberia's investments on itsfinancial performance and has decided to focus on two investments: Midland Incorporated andOdessa Company.Midland IncorporatedOn December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for €80million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia'sinvestment in Midland was €89 million at the end of 2008 and €85 million at the end of 2009. For theyear ended 2008, Midland reported net income of €30 million and paid dividends of €10 million. Forthe year ended 2009, Midland reported a loss of €5 million and paid dividends of €4 million.During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold allof the goods to a third party in 2010.Odessa CompanyOn January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-terminvestment. The purchase price was €20 per share and on December 31, 2009, the market price ofOdessa was €17 per share. The decline in value was considered temporary. For the year ended 2009,Odessa reported net income of €750 million and paid a dividend of €3 per share. Iberia considers itsinvestment in Odessa as an investment in financial assets.In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him todraft a report on accounting methods and ratio analysis. The following are statements fromStephenson's research report.Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account forjoint ventures.Statement 2: In general, if the parent's consolidated net income is positive, the equity methodreports a higher net profit margin than the acquisition method.Is Stephenson's statement regarding proportionate consolidation correct?

Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation atthe request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings invarious industries. Specifically, Stephenson is interested in the effects of Iberia's investments on itsfinancial performance and has decided to focus on two investments: Midland Incorporated andOdessa Company.Midland IncorporatedOn December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for €80million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia'sinvestment in Midland was €89 million at the end of 2008 and €85 million at the end of 2009. For theyear ended 2008, Midland reported net income of €30 million and paid dividends of €10 million. Forthe year ended 2009, Midland reported a loss of €5 million and paid dividends of €4 million.During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold allof the goods to a third party in 2010.Odessa CompanyOn January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-terminvestment. The purchase price was €20 per share and on December 31, 2009, the market price ofOdessa was €17 per share. The decline in value was considered temporary. For the year ended 2009,Odessa reported net income of €750 million and paid a dividend of €3 per share. Iberia considers itsinvestment in Odessa as an investment in financial assets.In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him todraft a report on accounting methods and ratio analysis. The following are statements fromStephenson's research report.Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account forjoint ventures.Statement 2: In general, if the parent's consolidated net income is positive, the equity methodreports a higher net profit margin than the acquisition method.What adjustment, if any, must Iberia make to its 2010 income statement as a result of theintercompany transaction with Midland?

Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation atthe request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings invarious industries. Specifically, Stephenson is interested in the effects of Iberia's investments on itsfinancial performance and has decided to focus on two investments: Midland Incorporated andOdessa Company.Midland IncorporatedOn December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for €80million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia'sinvestment in Midland was €89 million at the end of 2008 and €85 million at the end of 2009. For theyear ended 2008, Midland reported net income of €30 million and paid dividends of €10 million. Forthe year ended 2009, Midland reported a loss of €5 million and paid dividends of €4 million.During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold allof the goods to a third party in 2010.Odessa CompanyOn January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-terminvestment. The purchase price was €20 per share and on December 31, 2009, the market price ofOdessa was €17 per share. The decline in value was considered temporary. For the year ended 2009,Odessa reported net income of €750 million and paid a dividend of €3 per share. Iberia considers itsinvestment in Odessa as an investment in financial assets.In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him todraft a report on accounting methods and ratio analysis. The following are statements fromStephenson's research report.Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account forjoint ventures.Statement 2: In general, if the parent's consolidated net income is positive, the equity methodreports a higher net profit margin than the acquisition method.What amount should Iberia report on its balance sheet at the end of 2009 as a result of itsinvestments in Midland and Odessa?

Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation atthe request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings invarious industries. Specifically, Stephenson is interested in the effects of Iberia's investments on itsfinancial performance and has decided to focus on two investments: Midland Incorporated andOdessa Company.Midland IncorporatedOn December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for €80million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia'sinvestment in Midland was €89 million at the end of 2008 and €85 million at the end of 2009. For theyear ended 2008, Midland reported net income of €30 million and paid dividends of €10 million. Forthe year ended 2009, Midland reported a loss of €5 million and paid dividends of €4 million.During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold allof the goods to a third party in 2010.Odessa CompanyOn January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-terminvestment. The purchase price was €20 per share and on December 31, 2009, the market price ofOdessa was €17 per share. The decline in value was considered temporary. For the year ended 2009,Odessa reported net income of €750 million and paid a dividend of €3 per share. Iberia considers itsinvestment in Odessa as an investment in financial assets.In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him todraft a report on accounting methods and ratio analysis. The following are statements fromStephenson's research report.Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account forjoint ventures.Statement 2: In general, if the parent's consolidated net income is positive, the equity methodreports a higher net profit margin than the acquisition method.What amount should Iberia recognize in its 2009 income statement as a result of its investments inMidland and Odessa?