This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 3 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 3 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. A rise in the general level of prices is called? A) Inflation. B) Deflation. C) Recession. D) Regression. Show Answer Correct Answer: A) Inflation. 2. The value of a company with debt is the same as the value of a company without debt is a statement of..... A) Traditional Theory Approach. B) Modern Theoretical Approach. C) MM Theory Approach Without Tax. D) MM Theory Approach to Tax. Show Answer Correct Answer: C) MM Theory Approach Without Tax. 3. A financial manager makes a choice of the amount and source of capital based on how the choice will impact the ..... A) Revenue. B) Face value of bonds. C) Depreciation. D) Firm value. Show Answer Correct Answer: D) Firm value. 4. A company Weigthed average cost of capital includes: A) The company capital structure. B) The company capital structure & cost of capital. C) The company cost of capital. D) The company financing sources. Show Answer Correct Answer: B) The company capital structure & cost of capital. 5. Which component of capital structure determines the financial risk? A) Equity. B) Debt. C) Retained Earnings. D) NONE OF THESE. Show Answer Correct Answer: B) Debt. 6. M&M Proposition II with taxes suggests that: A) The cost of equity increases with the use of debt. B) The cost of equity decreases with the use of debt. C) The cost of equity remains constant regardless of the use of debt. D) None of above. Show Answer Correct Answer: B) The cost of equity decreases with the use of debt. 7. Which of the following should appear in a company's statement of changes in equity?(1) Total comprehensive income for the year (2) Amortisation of capitalised development costs (3) Surplus on revaluation of non-current assets A) 1 and 2 only. B) 2 and 3 only. C) 1 and 3 only. D) 1, 2 and 3. Show Answer Correct Answer: C) 1 and 3 only. 8. Financial risk is: A) The risk inherent in a company's operations. B) A type of unsystematic risk. C) Inversely related to the cost of equity. D) Dependent upon a company's capital structure. Show Answer Correct Answer: D) Dependent upon a company's capital structure. 9. Which is an example of an internal source of finance? A) Owners' Funds. B) Venture Capital. C) Overdraft. D) Trade credit. Show Answer Correct Answer: A) Owners' Funds. 10. The longer the working capital cycle takes to complete, the ..... working capital a firm will need. A) Less. B) More. C) NOT SURE. D) NEITHER MORE NOR LESS. Show Answer Correct Answer: B) More. 11. O'Brien Inc. has the following data:rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of equity from retained earnings based on the CAPM? A) 11.30%. B) 11.64%. C) 11.99%. D) 12.35%. Show Answer Correct Answer: A) 11.30%. 12. An analyst gathered the following information about a private company and itspublicly traded competitor.The estimated equity beta for the private company is closest to: A) 1.029. B) 1.104. C) 1.877. D) None of above. Show Answer Correct Answer: C) 1.877. 13. LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept? A) All of the projects should be accepted. B) Project B, which is of below-average risk and has a return of 8.5%. C) Project C, which is of above-average risk and has a return of 11%. D) Project A, which is of average risk and has a return of 9%. Show Answer Correct Answer: B) Project B, which is of below-average risk and has a return of 8.5%. 14. When debt increase:i-firm value increases ii-probability of default decreases iii-interest tax shield increases A) I and ii. B) I and iii. C) Ii and iii. D) All of the above. Show Answer Correct Answer: B) I and iii. 15. Trade-off theory assumes ..... A) Tax is available. B) Bankruptcy cost is available. C) Both are correct. D) Both are incorrect. Show Answer Correct Answer: C) Both are correct. 16. How does growth and change affect capital structure in a nonprofit organization? A) It requires expansion of the balance sheet and increased organizational capacity. B) It decreases the organization's assets and liabilities. C) It has no impact on capital structure. D) It increases the organization's cash reserves. Show Answer Correct Answer: A) It requires expansion of the balance sheet and increased organizational capacity. 17. What does Modigliani-Miller I (MM I) in a world with no taxes states? A) The value of a firm increases with its level of debt. B) The value of a firm is unaffected by its capital structure. C) The value of a firm decreases with its level of debt. D) The value of a firm depends entirely on its capital structure. Show Answer Correct Answer: B) The value of a firm is unaffected by its capital structure. 18. A corporation borrows P1, 000, 000 at 10% annual rate of interest. The firm has 40% tax rate. The yearly, after-tax cost of this debt is A) 40, 000. B) 60, 000. C) 100, 000. D) 166, 667. Show Answer Correct Answer: B) 60, 000. 19. A capital structure theories which suggest that a firm can lower its weighted average cost of capital and increase its market value by the judicious use of financial leverage. A) Traditional Approach. B) The MM Approach. C) Contemporary Approach. D) None of above. Show Answer Correct Answer: A) Traditional Approach. 20. Which of the following could be turned into cash the easiest or quickest? A) Raw materials. B) Finished product. C) Semi-finished product. D) None of these. Show Answer Correct Answer: B) Finished product. ← PreviousNext →Related QuizzesCapital Structure Quiz 1Capital Structure Quiz 2Capital 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