BSAS 2014 Practice Exam Addendum

Thank you for your comments and questions. All submitted comments were reviewed and considered by our
exam coordinator and team of level coordinators. Only questions that were incorrect or needed further
clarification are included on this addendum.

Level I: Afternoon Session

Answer 119. C. List of assets to be included in the portfolio.

Level II: Morning Session

Item Set 5
Answer 27. C. Answer remains the same. Clarification: With an upward revision of $1,500,000 for the
building cost, the building book value at the end of year 5 will be $1,125,000 higher ( an increase
from $15,000,000 to $16,125,000). This will reduce the capital gains tax by $450,000 =
$1,125,000 x 0.40. In present value term, this is a saving of $393,138. Thus, the NPV will
decrease by $1,386,276 - $393,138 = $993,138.
Item Set 6
Answer 35. B. Answer remains the same. Clarification: In Cost of Equity calculation, beta should be 1.3 not
1.4. WACC = 8.78%

Level II: Afternoon Session

Item Set 3
Question 16. C. Answer remains the same. In the question, Siegfried Stores follows US GAAP and change LIFO
from “least likely to have” to “most likely to have.”
Item Set 5
Answer 26. Value of Combined Firm = $6,020. (4,500 + 1,400 + 120)

Level III: Morning Session

Answer 1C. Answers are as follows: Trader, Active, Passive.
Answer 2A. Next retirement payment = £150,000 x 1.025 = £153,750. Answer remains the same.

Level III: Afternoon Session

Answer 34. Replace “most likely incorrect” with “most likely correct”
Answer 45. C. $80 + $85
(1.0115) (1.0175)^2 = $82.450
Answer 51. Both B and C are incorrect statements, allowing for two correct answers.