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Capital Structure Quiz 11 (17 MCQs)

Quiz Instructions

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1. Brandon Wiene is a financial analyst covering the beverage industry. He is evaluating the impact of DEF Beverage's new product line of flavored waters. DEF currently has a debt-to-equity ratio of 0.6. The new product line would be financed with $ 50 million of debt and $ 100 million of equity. In estimating the valuation impact of this new product line on DEF's value, Wiene has estimated the equity beta and asset beta of comparable companies. In calculating the equity beta for the product line, Wiene is intending to use DEF's existing capital structure when converting the asset beta into a project beta. Which of the following statements is correct?
2. With the existence of fixed operating costs; a decrease in sales will result in ..... EBIT
3. Leverage refers to the effects that variable costs have on the returns that shareholders earn
4. One way a firm can shorten the working capital cycle is:
5. Funds acquired by the firm through retaining earnings have no cost because there are no dividend or interest payments associated with them, and no flotation costs are required to raise them, but capital raised by selling new stock or bonds does have a cost.
6. Which of the following mature companies is most likely to employ a high proportion of debt in its capital structure?
7. How many topic do we have in "Financial Economic" module?
8. A limited liability company issued 50, 000 ordinary shares of 25c each at a premium of 50c per share. The cash received was correctly recorded but the full amount was credited to the ordinary share capital account.Which one of the following journal entries is needed to correct this error?
9. At 31 December 20X1 the capital structure of a company was as follows:Ordinary share capital $ 100, 000 shares of 50c each 50, 000Share premium account 180, 000During 20X2 the company made a bonus issue of 1 share for every 2 held, using the share premium account for the purpose, and later issued for cash another 60, 000 shares at 80c per share.What is the company's capital structure at 31 December 20X2?
10. When a company decides financing the major of their operating with debt rather than equity, the company is
11. According to the illustrative financial structure in IAS 1 Presentation of financial statements, where should dividends paid during the year should be disclosed?
12. At 30 June 20X2 a company's capitalstructure was as follows:Ordinary share capital $ 500, 000 shares of 25c each 125, 000Share premium account 100, 000In the year ended 30 June 20X3 the company made a rights issue of 1 share for every 2 held at $ 1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.What was the company's capital structure at 30 June 20X3?
13. How do donor restrictions on assets and income affect capital structure in a nonprofit organization?
14. Which is the cheapest Source of Finance
15. The negative relationship between profitability and leverage is in line with which theory?
16. Enterprises are divided into 3 forms, 4 forms and 4 types. Which of the following is a type of enterprise?
17. The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.
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