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CFA Institute Exam CFA-Level-II Topic 3 Question 82 Discussion

Actual exam question for CFA Institute's CFA Level II Chartered Financial Analyst exam
Question #: 82
Topic #: 3
[All CFA Level II Chartered Financial Analyst Questions]

Lauren Jacobs, CFA, is an equity analyst for DF Investments. She is evaluating Iron Parts Inc. Iron Parts is a manufacturer of interior systems and components for automobiles. The company is the world's second largest original equipment auto parts supplier, with a market capitalization of $1.8 billion. Based on Iron Parts's low price-to-book value ratio of 0.9* and low price-to-sales ratio of 0.15x, Jacobs believes the stock could be an interesting investment. However, she wants to review the disclosures found in the company's financial footnotes. In particular, Jacobs is concerned about Iron Parts's defined benefit pension plan. The following information for 2007 and 2008 is provided.

Iron Parts has adopted SFAS No. 158, Employers' Accounting for Defined Benefit Pensions and Other Postretirement Plans.

Jacobs wants to fully understand the impact of changing pension assumptions on Iron Parts's balance sheet and income statement. In addition, she would like to compute Iron Parts's economic pension expense.

As of December 31, 2008, the funded status of Iron Parts's pension plan was:

Show Suggested Answer Hide Answer
Suggested Answer: B

Funded status equals fair value of plan assets minus PBO (395 - 635 = -240). (Study Session 6, LOS 22.c,f)


Contribute your Thoughts:

Filiberto
3 months ago
Whoa, this is a real pension puzzler! I'm torn, but I'll take a shot at B. $240 million underfunded. Sounds like Iron Parts needs to pump up those tires!
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Noe
3 months ago
Tough call, but I'm leaning towards A. $175 million underfunded. That low price-to-book ratio is a red flag, so the underfunded pension makes sense.
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Hobert
3 months ago
Yeah, the underfunded pension definitely raises some concerns about the company's financial health.
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Pa
3 months ago
I agree with you, A seems like the most logical choice given the information we have.
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Nu
4 months ago
This seems straightforward enough. I'm going with C. $183 million overfunded. Gotta love those pension plan surpluses!
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Lea
3 months ago
Let's double-check the calculations before making a final decision.
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Sylvia
3 months ago
I'm pretty confident it's C. $183 million overfunded.
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Olga
3 months ago
Really? I was leaning towards A. $175 million underfunded.
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Ruthann
3 months ago
I think it's actually B. $240 million underfunded.
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An
4 months ago
Hmm, I'm pretty sure the answer is B. $240 million underfunded. The information provided clearly shows the plan is underfunded, and the numbers line up with that choice.
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Cecily
3 months ago
Yes, the numbers in the financial footnotes clearly indicate that Iron Parts's pension plan is underfunded by $240 million.
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Barbra
3 months ago
I agree with you, the answer is definitely B. $240 million underfunded.
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Otis
4 months ago
I believe the underfunded status of the pension plan could have a negative impact on Iron Parts's financials.
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Ernie
4 months ago
I agree with Shantay, the pension plan seems to be underfunded based on the information provided.
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Shantay
4 months ago
I think the answer is B) $240 million underfunded.
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