CFA Level II Full-Length Mock Exam

Sample Question

Harrington Manufacturing reported the following for fiscal year 2023: Revenue of $850 million, Cost of Goods Sold of $510 million, and Operating Expenses of $170 million. The company uses FIFO inventory accounting. An analyst notes that LIFO reserve increased from $28 million to $36 million during the year. The effective tax rate is 25%. Additionally, the company capitalized $45 million in software development costs that a peer company expenses immediately. The peer company reported EBIT of $320 million on revenue of $850 million. An analyst is comparing Harrington's profitability to its peer. After adjusting Harrington's financial statements to be comparable to the peer (converting FIFO to LIFO and expensing the capitalized costs), what is Harrington's adjusted EBIT margin?

• A.18.2%
• B.19.4%
• C.20.0%
• D.21.2%

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