QUESTIONS 79 THROUGH 90 RELATE TO EQUITY INVESTMENTS

89. - MOCK AND SAMPLE EXAMS CFA LEVEL I MOCK EXAM AFTERNOON 2012
MOCK AND SAMPLE EXAMS CFA LEVEL I MOCK EXAM AFTERNOON 2012
89. A fund manager gathers the following data in order to assess a stock’s potential for a possible addition to her portfolio: Company’s net income $20 millionCompany’s equity at the beginning of the year $140 millionCompany’s weighted average cost of capital (WACC) 10.75%Stock’s beta 1.80Market risk premium 5.25%Risk-free rate 3.50%Fund manager’s required rate of return 13.60%Which of the following is the most appropriate decision for the fund manager? A. Do not invest in the stock. B. Invest in the stock because the company’s ROE is greater than the required rate of return. C. Invest in the stock because the required rate of return is greater than the company’s WACC.