This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 2 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 2 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. This decision is about the quantum of finance to be raised from various long-term sources. A) Investment decision. B) Financing decision. C) Dividend decision. D) Capital budgeting decision. Show Answer Correct Answer: B) Financing decision. 2. Earning per share (EPS) is earnings divided by ..... A) Number of outstanding share. B) Risk. C) Return. D) Expense. Show Answer Correct Answer: A) Number of outstanding share. 3. The term "capital structure" refers to: A) Long-term debt, preferred stock, and common stock equity. B) Current assets and current liabilities. C) Total assets minus liabilities. D) Shareholders' equity. Show Answer Correct Answer: A) Long-term debt, preferred stock, and common stock equity. 4. When more debt is added to capital structure, which of the following happens? A) Cost of equity decreases. B) Cost of equity increases. C) Cost of equity remains constant. D) None of these. Show Answer Correct Answer: B) Cost of equity increases. 5. Bankruptcy Cost is a cost that includes the following things, except..... A) Bankruptcy processing legal fees. B) Administrative costs of managing bankruptcy. C) Debt payment obligations to creditors. D) None of above. Show Answer Correct Answer: C) Debt payment obligations to creditors. 6. Which of the following does a firm consider in the choice of securities issued? A) The tax consequences of the chosen security. B) The transactions costs of the chosen security. C) Whether the chosen security will have a fair price in the market. D) All of the above are considered. . Show Answer Correct Answer: D) All of the above are considered. . 7. Which one of the following states that the value of a firm is unrelated to the firm's capital structure? A) CAPM. B) M&M proposition 1. C) M&M proposition 2. D) Efficient markets hypothesis. Show Answer Correct Answer: B) M&M proposition 1. 8. What does external mean? A) A source from within the business. B) A source from outside the business. Show Answer Correct Answer: B) A source from outside the business. 9. MM in the theory of capital structure stands for ..... A) Modigliani and Miller. B) Modigliani and Mellar. C) Miller and Mustofa. D) Miller and Modigliani. Show Answer Correct Answer: A) Modigliani and Miller. 10. A firm that does not have trouble meeting its debt obligations is said to be in financial distress. A) True. B) False. Show Answer Correct Answer: B) False. 11. A firm's ..... ratio is the fraction of the firm's total value that corresponds to debt. A) Debt-to-equity. B) Equity-to-debt. C) Debt-to-value. D) Liability. Show Answer Correct Answer: C) Debt-to-value. 12. If a company issues bonds worth 1, 000 billion kip, ask how the company will record the list? A) Dr assets (money )Cr capital. B) Dr assets (money )Cr liabilities. C) Dr Liabilities Cr Assets (Bonds). D) None of these are correct. Show Answer Correct Answer: B) Dr assets (money )Cr liabilities. 13. How does the business cycle affect capital structure decisions for Arnav, Riyaan, and Krish? A) The business cycle affects capital structure decisions for Arnav, Riyaan, and Krish by influencing the availability and cost of capital. B) The business cycle only affects short-term financing options, not capital structure decisions for Arnav, Riyaan, and Krish. C) Capital structure decisions for Arnav, Riyaan, and Krish are solely based on the company's profitability. D) The business cycle has no impact on capital structure decisions for Arnav, Riyaan, and Krish. Show Answer Correct Answer: A) The business cycle affects capital structure decisions for Arnav, Riyaan, and Krish by influencing the availability and cost of capital. 14. An enterprise that divides its registered capital into equal shares, has the right to freely transfer shares through the stock market. What kind of enterprise is that? A) Individual enterprises. B) Company Limited. C) Limited Partnership Enterprise. D) Public company. Show Answer Correct Answer: D) Public company. 15. Floatation cost refers to A) Money paid to employees. B) Money paid to bankers. C) Money paid to arrange finance. D) Money paid to shareholders. Show Answer Correct Answer: C) Money paid to arrange finance. 16. If return on investment is 10 % and rate of interest is 12% then which source of fund should be used for maximizing shareholder's wealth. A) Debt. B) Equity. Show Answer Correct Answer: B) Equity. 17. What is the concept of 'tax shield' in the context of MM's theorem with taxes (1963)? A) It shields a firm all tax obligations. B) It refers to the tax advantages due to deductible interest payments on debt, making debt financing more attractive. C) It refers to tax deductions on equity financing, making equity financing more attractive. D) It allows a firm to transform all its taxes into tax-free income. Show Answer Correct Answer: B) It refers to the tax advantages due to deductible interest payments on debt, making debt financing more attractive. 18. A company made an issue for cash of 1, 000, 000 50c shares at a premium of 30c per share.Which one of the following journal entries correctly records the issue? A) Dr. Share Capital 5, 00, 000 ; Dr. Share Premium 3, 00, 000; Cr. Bank 8, 00, 000. B) Dr. Bank 8, 00, 000 ; Cr. Share Capital 5, 00, 000 ; Cr. Share Premium 3, 00, 000. C) Dr. Bank 13, 00, 000 ; Cr. Share Capital 10, 00, 000 ; Cr. Share Premium 3, 00, 000. D) Dr. Share Capital 10, 00, 000 ; Dr. Share Premium 3, 00, 000; Cr. Bank 13, 00, 000. Show Answer Correct Answer: B) Dr. Bank 8, 00, 000 ; Cr. Share Capital 5, 00, 000 ; Cr. Share Premium 3, 00, 000. 19. In Q.2 If Who have 10 % of shares of levered firm then what is value of firm and value of your 10 % Shares in firm A) Rs. 213, 043, Rs.11304. B) Rs. 113, 043, Rs. 11304. C) 213, 043, Rs. 21304. D) None of these. Show Answer Correct Answer: A) Rs. 213, 043, Rs.11304. 20. When Return on Investment (ROI) is high, which option should Aisha, Kiara, and Saisha choose? A) Debt. B) Equity. C) Both. D) None. Show Answer Correct Answer: A) Debt. ← PreviousNext →Related QuizzesCapital Structure Quiz 1Capital Structure Quiz 3Capital Structure Quiz 4Capital Structure Quiz 5Capital Structure Quiz 6Capital Structure Quiz 7Capital Structure Quiz 8Capital Structure Quiz 9Capital Structure Quiz 10Capital Structure Quiz 11 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books