This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 5 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 5 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. The ..... the amount of time between buying materials (inputs) to receiving payments from the customer the higher the risk to a firm. A) Longer. B) Shorter. C) Medium. D) None of these. Show Answer Correct Answer: A) Longer. 2. The increase in the use of debt as a source of financing cannot cause A) Increased Company Risk. B) Corporate Tax Reduction. C) Peningkatan Expected Return. D) Reduction in Company Net Income. E) Increase in Company EBT. Show Answer Correct Answer: E) Increase in Company EBT. 3. Dev has two projects A and B in hand. The same amount of risk is involved in both the projects. If the rate of return of project A and B is 20% and 15% respectively, then under normal circumstance, which of the two projects is likely to be selected? A) Project A. B) Project B. C) Both project A and project B. D) None of the above. Show Answer Correct Answer: A) Project A. 4. This is the process of planning expenditures that generate cash flows expected to extend beyond one year. A) Operating budgeting. B) Financial budgeting. C) Capital budgeting. D) Purchasing budgeting. Show Answer Correct Answer: C) Capital budgeting. 5. Earnings per share = ..... A) Number of Equity shares / (Profit after tax-Preference dividend). B) (Profit after tax-Preference dividend) / Number of Equity shares. C) (Profit after tax + Preference dividend) / Number of Equity shares. D) Number of Equity shares / (Profit after tax + Preference dividend). Show Answer Correct Answer: B) (Profit after tax-Preference dividend) / Number of Equity shares. 6. According to Modigliani-Miller Proposition I with taxes, what happens to the cost of capital as the debt-equity ratio increases? A) Increases. B) Decreases. C) It depends. D) None of above. Show Answer Correct Answer: B) Decreases. 7. Higher leverage generally results in higher returns, but also higher risks A) True. B) False. Show Answer Correct Answer: A) True. 8. Financial managers prefer to choose the same debt level no matter which industry they operate in. A) True. B) False. Show Answer Correct Answer: B) False. 9. The formula for finding V (Market Value) of a company is ..... A) Debt + Asset. B) Asset + Equity. C) Debt + Equity. D) None of above. Show Answer Correct Answer: C) Debt + Equity. 10. Investment cash flows are independent of financing choices in a ..... A) Market with frictions. B) Perfect capital market. C) Setting with frictions in investment returns. D) Firm with leverage. Show Answer Correct Answer: B) Perfect capital market. 11. "The market value of a company is calculated using its ..... and the risk of its underlying assets and that its value is ..... of the way it finances investments or distributes dividends" A) Earning power independent. B) Debt independent. C) Earning power Dependent. D) Debt-dependent. Show Answer Correct Answer: A) Earning power independent. 12. Retained earnings is the cheapest source of funds. A) Yes. B) No. Show Answer Correct Answer: A) Yes. 13. What is leverage? A) The concept of leverage states that till a certain point debt is not considered to be full-fledged liability. B) Leverage is the increase in revenue per share for relation. C) Leverage is used to portray an ideal situation in the case of a capital structure. D) Leverage is referred to as a particular technique that is said to use debt instead of fresh equity in the process of purchasing an asset. Show Answer Correct Answer: D) Leverage is referred to as a particular technique that is said to use debt instead of fresh equity in the process of purchasing an asset. 14. Financial Leverage means A) Increase in total earnings per share in the company. B) Maximising equity. C) Minimising debts. D) The balance between equity and debt. Show Answer Correct Answer: A) Increase in total earnings per share in the company. 15. Which one of the following statements is correct in relation to M&M Proposition II, without taxes? A) The cost of equity remains constant as the debt-equity ratio increases. B) The cost of equity is inversely related to the debt-equity ratio. C) The required return on assets is equal to the weighted average cost of capital. D) Financial risk is unaffected by the debt-equity ratio. Show Answer Correct Answer: C) The required return on assets is equal to the weighted average cost of capital. 16. What is a leveraged recapitalisation? A) Its when a company issues new shares to decrease its debt. B) It's when a company borrows money to repurchase its own shares. C) It's when a company sells assets to repay its debts. D) It's when a company uses its cash reserves to increase its debt. Show Answer Correct Answer: B) It's when a company borrows money to repurchase its own shares. 17. A company's perpetual preferred stock currently sells for $ 92.50 per share, and it pays an $ 8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock? A) 7.81%. B) 8.65%. C) 9.10%. D) 9.56%. Show Answer Correct Answer: C) 9.10%. 18. Degree of Total Leverage-The percentage change in a firm's (a) resulting from a 1 percent change in (b) A) A-EBITb-EPS. B) A-EPSb-EBIT. C) A-EPSb-sales. D) A-salesb-EPS. Show Answer Correct Answer: C) A-EPSb-sales. 19. Managers can decide on capital structure by using WACC. A) Yes. B) No. Show Answer Correct Answer: A) Yes. 20. A firm has fixed operating cost of P175, 000, total sales revenue of P3, 000, 000 and total variable cost of P2, 250, 000. The firms degree of operating leverage is ..... A) 0.77. B) 1.30. C) 0.81. D) 4.29. Show Answer Correct Answer: B) 1.30. ← PreviousNext →Related QuizzesCapital Structure Quiz 1Capital Structure Quiz 2Capital Structure Quiz 3Capital Structure Quiz 4Capital 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