This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 13 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 13 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Explain the concept of leverage in capital structure, Aditi, Myra, and Aashi! A) Leverage in capital structure refers to the use of equity to finance a company's operations and investments. B) Leverage in capital structure refers to the use of debt to finance a company's operations and investments. C) Leverage in capital structure refers to the use of cash to finance a company's operations and investments. D) Leverage in capital structure refers to the use of assets to finance a company's operations and investments. Show Answer Correct Answer: B) Leverage in capital structure refers to the use of debt to finance a company's operations and investments. 2. Turk, Inc. has determined that it could issue $ 1, 000 face value bonds with an 8%coupon paid semi-annually and a five-year maturity at $ 900 per bond. If Turk Inc.'s marginal tax rate is 38%, its after-tax cost of debt is closest to: A) 6.2%. B) 6.4%. C) 6.6%. D) None of above. Show Answer Correct Answer: C) 6.6%. 3. Below is the payout policy, except..... A) Dividend Distribution. B) Share Buyback. C) Purchase of Fixed Assets. D) None of above. Show Answer Correct Answer: C) Purchase of Fixed Assets. 4. The cost of debt is higher than the cost of equity A) True. B) False. Show Answer Correct Answer: B) False. 5. The Tradeoff Theory suggests that ..... A) A firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress. B) With higher costs of financial distress, it is optimal for a firm to choose higher leverage. C) Differences in the magnitude of financial distress costs and the volatility of cash flows cannot explain the differences in the use of leverage across industries. D) There is no rational explanation for why firms choose debt levels that are too low to fully exploit the debt tax shield. Show Answer Correct Answer: A) A firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress. 6. Neil Morrison has just invested $ 130, 000 in a restaurant. He expects to receive income of $ 24, 000 a year, and to have the investment for 8 years. What is the accounting rate of return? A) 5.60%. B) 18.46%. C) 14.52%. D) 12.41%. Show Answer Correct Answer: B) 18.46%. 7. Theory of MM assumes that ..... A) There is a brokerage cost. B) No taxes. C) There is a bankruptcy cost. D) Information is always symmetric. Show Answer Correct Answer: B) No taxes. 8. In Q 1 in test indifference point is at EBIT of A) Rs. 17, 72, 308. B) 11, 52, 000. C) 1727308. D) None of these. Show Answer Correct Answer: A) Rs. 17, 72, 308. 9. What do you mean by indifference point? A) Level of EBIT at which there is no profit no loss to equity share holders. B) Level of EBIT at which company has same EPS in all financial plans. C) When EBIT is zero. D) None of these. Show Answer Correct Answer: B) Level of EBIT at which company has same EPS in all financial plans. 10. What are some examples of assets in a nonprofit organization? A) Cash, investments, buildings, and equipment. B) Programs, staff, volunteers, and donors. C) Mission, vision, values, and goals. D) Board of directors, executive director, and committees. Show Answer Correct Answer: A) Cash, investments, buildings, and equipment. 11. How does the business cycle affect capital structure decisions for Advait, Ishika, and Akhil? A) The business cycle affects capital structure decisions for Advait, Ishika, and Akhil by influencing the availability and cost of capital. B) The business cycle only affects short-term financing options, not capital structure decisions for Advait, Ishika, and Akhil. C) Capital structure decisions for Advait, Ishika, and Akhil are solely based on the company's profitability. D) The business cycle has no impact on capital structure decisions for Advait, Ishika, and Akhil. Show Answer Correct Answer: A) The business cycle affects capital structure decisions for Advait, Ishika, and Akhil by influencing the availability and cost of capital. 12. An enterprise was established on December 10, 2022 which brought its assets including:land 200, building 150, cash 20, expenses 5 million and labor valued at 20 million kip. How is the registered capital of the enterprise recorded in the account? A) Dr assets 370 Cr registered capital 370. B) Dr assets 375 Cr registered capital 375. C) Dr assets 395 Cr registered capital 395. D) None of these are correct. Show Answer Correct Answer: A) Dr assets 370 Cr registered capital 370. 13. When Stock Market Conditions are Bearish, which option should Arnav, Ishaan, and Aashi choose? A) Debt. B) Equity. C) Both. D) None. Show Answer Correct Answer: A) Debt. 14. Financial leverage = A) Earnings before interest and tax / (Earnings before interest and tax-Interest). B) Earnings before interest and tax / (Earnings before interest and tax + Interest). C) (Earnings before interest and tax-Interest) / Earnings before interest and tax. D) (Earnings before interest and tax + Interest) / Earnings before interest and tax. Show Answer Correct Answer: A) Earnings before interest and tax / (Earnings before interest and tax-Interest). 15. 'That personal leverage can replace corporate leverage' is assumed by: A) Net Income Approach. B) Net Operating Income Approach. C) MM Model with taxes. D) Traditional Approach. Show Answer Correct Answer: C) MM Model with taxes. 16. When is financial leverage profitable? A) When debts are lesser than equity. B) When debts and equity are in balance. C) When the company is growing exponentially. D) When the cost of capital decreases. Show Answer Correct Answer: C) When the company is growing exponentially. 17. Under which of the following situations is a company unlikely to issue equity capital? A) When the debt service coverage ratio is high. B) When the interest coverage ratio is high. C) When the cost of debt capital is low. D) All of the above. Show Answer Correct Answer: D) All of the above. 18. Degree of total leverage can be applied in measuring change in ..... A) EBIT to a percentage change in quantity. B) EPS to a percentage change in EBIT. C) EPS to a percentage change in quantity. D) Quantity to a percentage change in EBIT. Show Answer Correct Answer: C) EPS to a percentage change in quantity. 19. The business risk of a company: A) Depends on the company's level of unsystematic risk. B) Is inversely related to the required return on the company's assets. C) Is dependent upon the relative weights of the debt and equity used to finance the company. D) Has a positive relationship with the company's cost of equity. Show Answer Correct Answer: D) Has a positive relationship with the company's cost of equity. 20. Wonder Plantation wants to increase their financing of $ 1 million by issuing 100, 000 common shares at $ 10/share. Expected EBIT = $ 800, 000Income tax rate is 35%. Calculate the DFL. A) 1.25. B) 1.00. C) 1.13. D) 1.23. Show Answer Correct Answer: B) 1.00. ← 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 10 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books