This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Structure – Quiz 8 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 8 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Refers to investor-supplied funds, debt, preferred shares, ordinary equity and retained earnings. A) Investment. B) Capital. C) Leverage. D) None of above. Show Answer Correct Answer: B) Capital. 2. Choose the CORRECT statement A) Financial leverage concerns with the use of fixed costs by the firm for production. B) Operating leverage concerns with the use of fixed financing costs by the firm. C) Financial leverage is acquired by choice to increase the profit. D) Degree of total leverage measures the sensitivity of earnings per share to the change in sales. Show Answer Correct Answer: D) Degree of total leverage measures the sensitivity of earnings per share to the change in sales. 3. The inability of a business to meet its fixed financial obligations, like payment of interest, is known as A) Business risk. B) Financial risk. C) Long-term risk. D) Market risk. Show Answer Correct Answer: B) Financial risk. 4. The traditional approach towards the valuation of a company assumes ..... A) That the overall capitalization rate holds constant with changes in financial leverage. B) That there is an optimum capital structure. C) That total risk is not altered by changes in the capital structure. D) That markets are perfect. Show Answer Correct Answer: B) That there is an optimum capital structure. 5. In Q.2 of test which company is more levered i.e has more risk A) N Ltd. B) M Ltd. C) Both. D) None of these. Show Answer Correct Answer: B) M Ltd. 6. How does the cost of debt impact the capital structure of a company, Aarush, Aashi, and Mira? A) The cost of debt impacts the capital structure of a company by increasing the overall debt level and potentially increasing the financial risk. B) The cost of debt increases the equity level of a company. C) The cost of debt decreases the overall debt level of a company. D) The cost of debt has no impact on the capital structure of a company. Show Answer Correct Answer: A) The cost of debt impacts the capital structure of a company by increasing the overall debt level and potentially increasing the financial risk. 7. Which of the following can't be a Capital Structure? A) Equity + Debentures. B) Equity only. C) Preference Shares only. D) Equity + Preference. Show Answer Correct Answer: C) Preference Shares only. 8. A firm has a current capital structure consisting of P400, 000 of 12% annual interest debt and 50, 000 shares of common stock. The firms tax rate is 40% on ordinary income. lf the EBIT is expected to be P200, 000, the firms earings per share will be A) 2.40. B) 3.04. C) 7.04. D) 1.82. Show Answer Correct Answer: D) 1.82. 9. The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the internal rate of return. A) TRUE. B) FALSE. Show Answer Correct Answer: A) TRUE. 10. If cashflow position of company is good, which option should Nikita, Akhil, and Kavya choose? A) Equity. B) Retained Earnings. C) Debt. D) All of these. Show Answer Correct Answer: C) Debt. 11. Degree of operating leverage is percent change in sales divided by percent change in EBIT A) True. B) False. Show Answer Correct Answer: B) False. 12. Explain the concept of leverage in capital structure to Aanya, Ishaan, and Arjun. A) Leverage in capital structure refers to the use of equity to finance a company's operations and investments. B) Leverage in capital structure refers to the use of debt to finance a company's operations and investments. C) Leverage in capital structure refers to the use of cash to finance a company's operations and investments. D) Leverage in capital structure refers to the use of assets to finance a company's operations and investments. Show Answer Correct Answer: B) Leverage in capital structure refers to the use of debt to finance a company's operations and investments. 13. Financial leverage is also known as ..... A) Trading on debt. B) Trading on equity. C) Trading on equity. D) Interest on debt. Show Answer Correct Answer: B) Trading on equity. 14. A firm has operating costs of P10, 000, the sales prices per unit of its product is P25 and its variable cost per unit is P15. The firm breakeven point in units is ..... and its breakeven point in peso is ..... A) 250; P6, 250. B) 400, P10, 000. C) Shhh P16, 675. D) 1, 000; Bakh, 000. Show Answer Correct Answer: D) 1, 000; Bakh, 000. 15. The cost of debt is equal to one minus the marginal tax rate multiplied by the interest rate on new debt. A) TRUE. B) FALSE. Show Answer Correct Answer: A) TRUE. 16. In order to raise an additional capital of?50 lacs, Yudhister Limited has used debt because A) Increased use of debt lowers the overall cost of capital. B) Decrease in use of debt lowers overall cost of capital. C) Increase in use of debt increases the overall cost of capital. D) None of the above. Show Answer Correct Answer: A) Increased use of debt lowers the overall cost of capital. 17. Under this type of Lease the Lessor can Lease the Asset to more than one person ..... A) Financial Lease. B) Leveraged Lease. C) Operating Lease. D) Direct Leasing. Show Answer Correct Answer: C) Operating Lease. 18. If EBIT is more 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: B) Levered Financial Plan. 19. The cost of capital used in capital budgeting should reflect the average cost of the various sources of investor-supplied funds a firm uses to acquire assets. A) TRUE. B) FALSE. Show Answer Correct Answer: A) TRUE. 20. According to tradeoff theory, the total value of a levered firm equals the value of the firm without leverage plus the present value of ....., less the present value of ..... A) Interest payments, Financial distress costs. B) Financial distress costs, interest payments. C) Financial distress costs, Interest tax shield. D) Interest tax shield, Financial distress costs. Show Answer Correct Answer: D) Interest tax shield, Financial distress costs. ← 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 9Capital Structure Quiz 10Capital Structure Quiz 11 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books