This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 15 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 15 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. The firm's capital structure refers to ..... A) The way a firm invests its assets. B) The amount of capital in the firm. C) The amount of dividends a firm pays. D) The mix of debt and equity used to finance the firm's assets. E) How much cash the firm holds. Show Answer Correct Answer: D) The mix of debt and equity used to finance the firm's assets. 2. Which one of the following journal entries could correctly record a bonus issue of shares? A) Dr. Cash Rs. 1, 00, 000 Cr. Ordinary share capital Rs.1, 00, 000. B) Dr. Ordinary share capital Rs.1, 00, 000 Cr. Share Premium Rs. 1, 00, 000. C) Dr. Share Premium Rs. 1, 00, 000 Cr. Ordinary share capital Rs.1, 00, 000. D) Investment Rs. 1, 00, 000 Cr. Cash Rs. 1, 00, 000. Show Answer Correct Answer: C) Dr. Share Premium Rs. 1, 00, 000 Cr. Ordinary share capital Rs.1, 00, 000. 3. In order to enhance the wealth of the stockholders and to send positive signals to the market, corporations generally raise funds using the following order: A) Retained earnings, equity, debt. B) Retained earnings, debt, equity. C) Debt, retained earnings, equity. D) Equity, retained earnings, debt. Show Answer Correct Answer: B) Retained earnings, debt, equity. 4. What role does financial flexibility play in capital structure decisions for students like Ishaan, Alisha, and Shreya? A) Financial flexibility allows companies to adjust their capital structure in response to changing market conditions or business needs. B) Financial flexibility has no impact on capital structure decisions. C) Financial flexibility only applies to small businesses. D) Financial flexibility is only relevant for short-term financial goals. Show Answer Correct Answer: A) Financial flexibility allows companies to adjust their capital structure in response to changing market conditions or business needs. 5. 'In MM-Model, irrelevance of capital structure is based on: A) Cost of Debt and Equity. B) Decreasing k0. C) Arbitrage Process. D) Traditional Approach. Show Answer Correct Answer: C) Arbitrage Process. 6. Financial Planning helps in ..... A) Managing Business. B) Managing Human Resources. C) Forecasting Business Situations. D) All of the above. Show Answer Correct Answer: C) Forecasting Business Situations. 7. This decision determines the overall cost of capital and the financial risk of the enterprise A) Dividend decision. B) Capital budgeting decision. C) Investment decision. D) Financing decision. Show Answer Correct Answer: D) Financing decision. 8. When Tax rates are high, which option should Riyaan, Neha, and Vanya choose? A) Equity. B) Debt. C) Both. D) None. Show Answer Correct Answer: B) Debt. 9. The mix of debt, preferred stocks, and common equity that a firm plans to maintain over time is called as ..... A) Dream capital structure. B) Target capital structure. C) Just capital structure. D) Minimum capital structure. Show Answer Correct Answer: B) Target capital structure. 10. Refers to the use of debt (borrowed funds) to amplify returns from an investment or project. A) Investment. B) Capital. C) Leverage. D) None of above. Show Answer Correct Answer: C) Leverage. 11. A general rule for managers to follow is to set the firm's capital structure such that ..... A) The firm's value is minimized. B) The firm's value is maximized. C) The firm's bondholders are made well of. D) The firms suppliers of raw materials are satisfied. E) The firms dividend payout is maximized. Show Answer Correct Answer: B) The firm's value is maximized. 12. At 1 January 20X0 the capital structure of Q, a limited liability company was as follows:$ Issued share capital 1, 000, 000 ordinary shares of 50c each 500, 000Share premium account 300, 000On 1 April 20X0 the company made an issue of 200, 000 50c shares at $ 1.30 each, and on 1 July the company made a bonus (capitalisation) issue of one share for every four in issue at the time, using the share premium account for the purpose.Which of the following correctly states the company's share capital and share premium account at 31 December 20X0? A) Share capital Rs. 7, 50, 000 Share premium account Rs.2, 30, 000. B) Share capital Rs. 8, 75, 000 Share premium account Rs.2, 85, 000. C) Share capital Rs. 7, 50, 000 Share premium account Rs.3, 10, 000. D) Share capital Rs. 7, 50, 000 Share premium account Rs.6, 10, 000. Show Answer Correct Answer: C) Share capital Rs. 7, 50, 000 Share premium account Rs.3, 10, 000. 13. Refers to the additional risk placed on the ordinary equity shareholders as a result of the decision to finance with debt. A) Investment Risk. B) Business Risk. C) Financial Risk. D) None of above. Show Answer Correct Answer: C) Financial Risk. 14. If EBIT is less than Indifference point then which financial plan is better A) Unlevered Financial Plan. B) Levered Financial Plan. C) Financial Plan which is neither levered nor unlevered. D) None of these. Show Answer Correct Answer: A) Unlevered Financial Plan. 15. The internal rate of return is the least widely used of the capital investment techniques. A) TRUE. B) FALSE. Show Answer Correct Answer: B) FALSE. 16. The ..... the firm's leverage, the more the firm exploits the tax advantage of debt, and the ..... its WACC A) Lower, lower. B) Lower, higher. C) Higher, lower. D) Higher, higher. Show Answer Correct Answer: C) Higher, lower. 17. Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data:D0 = $ 0.80; P0 = $ 22.50; and g = 8.00% (constant). What is the cost of equity from retained earnings? A) 11.84%. B) 11.25%. C) 10.69%. D) 12.43%. Show Answer Correct Answer: A) 11.84%. 18. What is business risk in the context of a firm's cost of equity? A) The risk related to the firm's decision to use debt financing. B) The inherent risk in the firm's operations and activities. C) The risk that a firm cannot meet its short-term financial obligations. D) The risk that comes from changes in interest rates. Show Answer Correct Answer: B) The inherent risk in the firm's operations and activities. 19. The "tradeoff theory" of capital structure suggests that: A) Firms add leverage whenever interest rates are low. B) Firms with higher risk should use less debt. C) Firms should use debt to overcome high par values of stock. D) Firms should use 50% debt and 50% equity. Show Answer Correct Answer: B) Firms with higher risk should use less debt. 20. Which of the following stakeholders are least likely to be positively affected byincreasing the proportion of debt in the capital structure? A) Senior management. B) Non-managementemployees. C) Shareholders. D) None of above. Show Answer Correct Answer: B) Non-managementemployees. ← 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