Corporate Issuers

CFA® Level II, published weight 5–10%. Dividends and buybacks, ESG, advanced cost of capital, restructuring.

What the outline covers

Analysis of Dividends and Share Repurchases
ESG Considerations in Investment Analysis
Cost of Capital: Advanced Topics
Corporate Restructuring

Sample questions

These 5 questions are free in the app too. Try each one before opening the answer.

Question 1

A firm repurchases shares at a market price above book value per share. The effect on book value per share is:

A. An increase
B. A decrease
C. No change
D. An increase only if funded with cash

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B. Repurchasing above book value removes more equity per share than the shares carried, so book value per share falls. Below book value it rises.

Reading: Corporate Issuers — Analysis of Dividends and Share Repurchases, LOS 1.d

Question 2

A firm earns EPS of $4.00, targets a 40% payout ratio and currently pays $1.00. With an adjustment factor of 0.25, the target payout adjustment model predicts a dividend increase of:

EPS $4.00 · target payout 40% · D₀ $1.00 · adj 0.25

A. $0.15
B. $0.25
C. $0.60
D. $1.60

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A. Expected increase = (4.00 × 0.40 − 1.00) × 0.25 = (1.60 − 1.00) × 0.25 = $0.15. The full gap is closed only gradually.

Reading: Corporate Issuers — Analysis of Dividends and Share Repurchases, LOS 1.f

Question 3

When estimating the beta of a private firm using the pure-play method, the analyst should relever the unlevered beta using:

A. The comparable company’s debt-to-equity ratio
B. The subject company’s target debt-to-equity ratio
C. The industry average debt-to-equity ratio
D. A zero debt-to-equity ratio

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B. Unlever with the comparable’s capital structure to strip it out, then relever with the subject firm’s target structure. Using the comparable’s in both steps is the planted error.

Reading: Corporate Issuers — Cost of Capital: Advanced Topics, LOS 3.c

Question 4

In a share-exchange acquisition rather than a cash acquisition, the risk that expected synergies fail to materialise is:

A. Borne entirely by the acquirer
B. Shared between acquirer and target shareholders
C. Borne entirely by the target
D. Eliminated by the exchange ratio

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B. Target shareholders become owners of the combined entity, so they share in any shortfall. In a cash deal the acquirer bears the full risk.

Reading: Corporate Issuers — Corporate Restructuring, LOS 4.d

Question 5

Which ESG integration approach explicitly excludes entire industries from the investable universe?

A. Best-in-class
B. Negative screening
C. Thematic investing
D. Engagement and active ownership

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B. Negative screening removes sectors or activities outright. Best-in-class instead selects leaders within every sector.

Reading: Corporate Issuers — ESG Considerations in Investment Analysis, LOS 2.b

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