This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 14 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 14 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. When ROI is high, which of the following options can a company have? A) More Equity. B) Less Debt. C) Both a and b. D) Trading on equity. Show Answer Correct Answer: D) Trading on equity. 2. What do you call the cost of issuing equity shares? A) Cost of Equity. B) Floatation Cost. Show Answer Correct Answer: B) Floatation Cost. 3. A firm has EBIT of. 50, 000. Market value of debt is. 80, 000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is: A) Rs 2, 50, 000. B) Rs 1, 10, 000. C) Rs 1, 70, 000. D) Rs 30, 000. Show Answer Correct Answer: A) Rs 2, 50, 000. 4. MM Proposition I states that in a perfect capital market the total value of a firm is equal to the market value of the ..... generated by its assets. A) Earnings after taxes. B) Earnings after interest. C) Flows after taxes. D) Free cash flows. Show Answer Correct Answer: D) Free cash flows. 5. Which of the following types of enterprises in capital formation on the day of registration, the capital is 100% in material, the capital is in money, 70% can be added, the rest is added later. A) A sole proprietorship. B) Public company. C) Company Limited. D) State enterprises. Show Answer Correct Answer: C) Company Limited. 6. In Q.2 If Who have 10 % of shares of Unlevered firm then what is your income A) Rs. 1300. B) Rs. 2000. C) Rs. 1130. D) None of these. Show Answer Correct Answer: B) Rs. 2000. 7. The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of investors, and other factors. A) TRUE. B) FALSE. Show Answer Correct Answer: B) FALSE. 8. Operating leverage = A) Contribution x Earnings before interest and tax. B) Contribution / Earnings before interest and tax. C) Earnings before interest and tax / Contribution. D) Earnings before interest and tax + Contribution. Show Answer Correct Answer: B) Contribution / Earnings before interest and tax. 9. Calculating the cost of capital based on the company's debt and equity position is a definition of..... A) Weighted Average Cost of Capital. B) Capital Assets Pricing Model. C) Debt-Equity Ratio. D) None of above. Show Answer Correct Answer: A) Weighted Average Cost of Capital. 10. How is the effect of debt ratio (leverage) to the EPS? A) Fall, fall, and fall. B) Fall, bottom out, and rise. C) Rise, peak, and fall. D) Bottom, rise, and fall. Show Answer Correct Answer: C) Rise, peak, and fall. 11. Which of the following statements is not true? A) Increased use of debt increases the financial risk of a business. B) Increased use of debt decreases the financial risk of a business. C) Decrease in use of debt increases the financial risk of a business. D) None of the above. Show Answer Correct Answer: B) Increased use of debt decreases the financial risk of a business. 12. Which of the following is NOT true of working capital? A) It is the amount of capital the firm has available to pay for its operations. B) The amount of money a firm has to spend in the short term. C) It is a measure of the firm's liquidity. D) It is the sum total of a firm's fixed assets. Show Answer Correct Answer: D) It is the sum total of a firm's fixed assets. 13. If the Lessor and Lessee are situated in two different countries, the type of lease is known as ..... A) Cross Border Lease. B) Import Lease. C) Financial Lease. D) Operating Lease. Show Answer Correct Answer: A) Cross Border Lease. 14. Enterprises are divided into 3 forms, 4 forms and 4 types. Which of the following is the form of an enterprise? A) Individual enterprises, joint ventures, companies. B) Individual enterprises, limited partnerships, limited companies. C) Private enterprises, state enterprises, mixed enterprises, collective enterprises. D) General Partnership Enterprise Limited Partnership Limited Company Public Company Limited. Show Answer Correct Answer: A) Individual enterprises, joint ventures, companies. 15. By adding leverage, the returns on a firm are split between debt holders and equity holders, but equity holder risk increases because ..... A) Interest payments can be rolled over. B) Dividends are paid first. C) Debt and equity have equal priority. D) Interest payments have first priority. Show Answer Correct Answer: D) Interest payments have first priority. 16. Why is capitalization often neglected in the nonprofit sector? A) There is a belief that energy and enthusiasm can overcome all obstacles. B) There is a lack of understanding and awareness about capital structure. C) There is a focus on program and mission rather than financial management. D) All of the above. Show Answer Correct Answer: D) All of the above. 17. The Traditional Approach to Value of the firm m that A) There is no optimal capital structure,. B) Value can be increased by judicious use of leverage. C) Cost of Capital and Capital structure are constant. D) Risk of the firm is independent of capital structure. Show Answer Correct Answer: B) Value can be increased by judicious use of leverage. 18. If in the Project calculation, the Net Present Value (NPV) shows the number 0 with the composition R = WACC and C is the cash flow generated by the project, then as a manager you should..... A) Accept the project. B) Reject the project. C) Request a higher NPV. D) None of above. Show Answer Correct Answer: A) Accept the project. 19. When investors use leverage in their own portfolios to adjust the leverage choice made by the firm, it is referred to as ..... A) Outside debt. B) Retained earnings. C) Homemade leverage. D) Payout ratio. Show Answer Correct Answer: C) Homemade leverage. 20. How does the tax shield effect influence a firm's overall cost of capital when financial gearing is increased? A) It increases the cost of capital by increasing tax liabilities. B) It has no effect on the cost f capital. C) It reduces the cost of capital by lowering tax liabilities. D) It increases the risk of bankruptcy, thereby increasing the cost of capital. Show Answer Correct Answer: C) It reduces the cost of capital by lowering tax liabilities. ← 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