This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 10 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 10 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Which of the following is NOT an assumption made by the Modigliani-Miller theorem? A) There are no transaction costs. B) Firms can borrow at the risk-free rate. C) All firms have the same risk level. D) There are no bankruptcy cost. Show Answer Correct Answer: C) All firms have the same risk level. 2. Which one of these statements is correct? A) Capital structure has no effect on shareholder value. B) The optimal capital structure occurs when the cost of equity is minimized. C) The optimal capital structure maximizes shareholder value. D) Shareholder value is maximized when WACC is also maximized. Show Answer Correct Answer: C) The optimal capital structure maximizes shareholder value. 3. The increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest is called ..... A) Financial leverage. B) Debt Coverage. C) Interest coverage. D) Trading on Equity. Show Answer Correct Answer: D) Trading on Equity. 4. One of the capital structure theories is the MM approach. What does MM stand for? A) Modigliani Miler. B) Modigliani Miller. C) Modigliani Miller. D) Modigliani Miller. E) Modigliani Miller. Show Answer Correct Answer: B) Modigliani Miller. 5. What is "Homemade Leverage" ? A) The incurrence of debt by a corporation in order to pay dividends to shareholders. B) The exclusive use of debt to fund a corporate expansion project. C) The borrowing or lending of money by individual shareholders as a means of adjusting their level of financial leverage. D) Best defined as an increase in a firm's debt-equity ratio. Show Answer Correct Answer: C) The borrowing or lending of money by individual shareholders as a means of adjusting their level of financial leverage. 6. Any financial benefit derived from the interest tax shield accrues to the A) Shareholders. B) Bondholders. C) Managers. D) All of the above. Show Answer Correct Answer: A) Shareholders. 7. A debt is substituted for equity in the capital structure and debt ratio increases, all of the following statements about the component of cost of capital are true except A) The cost of equity continually increases. B) The cost of debt continually increases. C) The overall cost of capital first decline, reaches a minimum and then rises again. D) The overall cost of capital continually increases. Show Answer Correct Answer: D) The overall cost of capital continually increases. 8. Equity in a firm with debt is called ..... A) Levered equity. B) Risk-free equity. C) Unlevered equity. D) Preferred equity. Show Answer Correct Answer: A) Levered equity. 9. Which Theories say that market value of firm is affected by Capital structure: A) Net Income (NI) Approach & Traditional Approach. B) Net Operating Income(NOI) & Modigliani and Miller (MM) Approach. C) Net Income (NI) Approach and Modigliani and Miller (MM) Approach. D) Net Operating Income(NOI) & Traditional Approach. Show Answer Correct Answer: A) Net Income (NI) Approach & Traditional Approach. 10. When the result of company D/E ratio (Debt to equity ratio) is greater than 1, it indicates: A) A low risk level of company capital structure. B) A high risk level of company capital structure. C) A low risk level of company cost of capital. D) A high risk level of company cost of capital. Show Answer Correct Answer: B) A high risk level of company capital structure. 11. In reality, when external financing is required but the agency costs or financial distress costs of debt are too great, firms' may prefer to issue equity instead. A) True. B) False. Show Answer Correct Answer: A) True. 12. Which of the following is the name of the registered capital on the day of registration of the enterprise? A) All are correct. B) Capital consists of buildings, capital consists of land. C) Capital is material, capital is capital, capital is labor. D) Funds constitute funds form material. Show Answer Correct Answer: D) Funds constitute funds form material. 13. The way to buy back shares is to use the process ..... A) Offers on the Primary Market. B) Dutch Action. C) Initial Public Offering. D) None of above. Show Answer Correct Answer: B) Dutch Action. 14. When the stock market index is rising, a company may issue ..... in order to meet its financial requirements. A) Debentures. B) Bonds. C) Equity shares. D) None of the above. Show Answer Correct Answer: C) Equity shares. 15. There is ..... relation between operational expenditures and debt financing A) Direct. B) Inverse. C) No relation. D) None of above. Show Answer Correct Answer: B) Inverse. 16. The EBIT of ABC ltd is Rs 8, 00, 000. Rate of Interest is 10% and tax is 30%. Total capital employed is Debt 50, 00, 000. Equity-30, 00, 000 ( price per share is RS 10). Calculate EPS A) 21. B) 2.1. C) 1.03. D) 0.93. Show Answer Correct Answer: B) 2.1. 17. The issued share capital of Alpha, a limited liability company, is as follows:$ Ordinary shares of 10c each 1, 000, 0008% Redeemable preference shares of 50c each 500, 000In the year ended 31 October 20X2, the company has paid the preference dividend for the year and an interim dividend of 2c per share on the ordinary shares. A final ordinary dividend of 3c per share was proposed, before the reporting date.What would be recognised for dividends in the equity section of the statement of financial position at 31 October 20X2? A) $ 580, 000. B) $ 90, 000. C) $ 130, 000. D) $ 200, 000. Show Answer Correct Answer: D) $ 200, 000. 18. In this type of Lease the final intention of the Lessor is to transfer and sell of the asset to the Lessee ..... A) Operating Lease. B) Financial Lease. C) Leveraged Lease. D) Foreign Lease. Show Answer Correct Answer: B) Financial Lease. 19. A company will prefer: A) Really, the WACC rate for a company isn't relevant. B) A low WACC rate. C) A high WACC rate. D) None of above. Show Answer Correct Answer: B) A low WACC rate. 20. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data:D1 = $ 1.25; P0 = $ 27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock? A) 10.23%. B) 9.06%. C) 9.84%. D) 9.44%. Show Answer Correct Answer: C) 9.84%. ← PreviousNext →Related QuizzesCapital Structure Quiz 1Capital Structure Quiz 2Capital Structure Quiz 3Capital Structure Quiz 4Capital Structure Quiz 5Capital Structure Quiz 6Capital Structure Quiz 7Capital Structure Quiz 8Capital Structure Quiz 9Capital Structure Quiz 11 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books