This quiz works best with JavaScript enabled. Home > Finance > Corporate Finance > Capital Structure – Quiz 9 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Structure Quiz 9 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. The cost of debt is higher than the cost of equity A) True. B) False. Show Answer Correct Answer: B) False. 2. The Tradeoff Theory suggests that ..... A) A firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress. B) With higher costs of financial distress, it is optimal for a firm to choose higher leverage. C) Differences in the magnitude of financial distress costs and the volatility of cash flows cannot explain the differences in the use of leverage across industries. D) There is no rational explanation for why firms choose debt levels that are too low to fully exploit the debt tax shield. Show Answer Correct Answer: A) A firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress. 3. Neil Morrison has just invested $ 130, 000 in a restaurant. He expects to receive income of $ 24, 000 a year, and to have the investment for 8 years. What is the accounting rate of return? A) 14.52%. B) 5.60%. C) 18.46%. D) 12.41%. Show Answer Correct Answer: C) 18.46%. 4. Theory of MM assumes that ..... A) Information is always symmetric. B) There is a brokerage cost. C) There is a bankruptcy cost. D) No taxes. Show Answer Correct Answer: D) No taxes. 5. In Q 1 in test indifference point is at EBIT of A) Rs. 17, 72, 308. B) 11, 52, 000. C) 1727308. D) None of these. Show Answer Correct Answer: A) Rs. 17, 72, 308. 6. What do you mean by indifference point? A) Level of EBIT at which there is no profit no loss to equity share holders. B) Level of EBIT at which company has same EPS in all financial plans. C) When EBIT is zero. D) None of these. Show Answer Correct Answer: B) Level of EBIT at which company has same EPS in all financial plans. 7. What are some examples of assets in a nonprofit organization? A) Cash, investments, buildings, and equipment. B) Programs, staff, volunteers, and donors. C) Mission, vision, values, and goals. D) Board of directors, executive director, and committees. Show Answer Correct Answer: A) Cash, investments, buildings, and equipment. 8. How does the business cycle affect capital structure decisions for Advait, Ishika, and Akhil? A) The business cycle affects capital structure decisions for Advait, Ishika, and Akhil by influencing the availability and cost of capital. B) The business cycle only affects short-term financing options, not capital structure decisions for Advait, Ishika, and Akhil. C) Capital structure decisions for Advait, Ishika, and Akhil are solely based on the company's profitability. D) The business cycle has no impact on capital structure decisions for Advait, Ishika, and Akhil. Show Answer Correct Answer: A) The business cycle affects capital structure decisions for Advait, Ishika, and Akhil by influencing the availability and cost of capital. 9. An enterprise was established on December 10, 2022 which brought its assets including:land 200, building 150, cash 20, expenses 5 million and labor valued at 20 million kip. How is the registered capital of the enterprise recorded in the account? A) Dr assets 370 Cr registered capital 370. B) Dr assets 375 Cr registered capital 375. C) Dr assets 395 Cr registered capital 395. D) None of these are correct. Show Answer Correct Answer: A) Dr assets 370 Cr registered capital 370. 10. When Stock Market Conditions are Bearish, which option should Arnav, Ishaan, and Aashi choose? A) Debt. B) Equity. C) Both. D) None. Show Answer Correct Answer: A) Debt. 11. Financial leverage = A) Earnings before interest and tax / (Earnings before interest and tax-Interest). B) Earnings before interest and tax / (Earnings before interest and tax + Interest). C) (Earnings before interest and tax-Interest) / Earnings before interest and tax. D) (Earnings before interest and tax + Interest) / Earnings before interest and tax. Show Answer Correct Answer: A) Earnings before interest and tax / (Earnings before interest and tax-Interest). 12. 'That personal leverage can replace corporate leverage' is assumed by: A) MM Model with taxes. B) Net Operating Income Approach. C) Traditional Approach. D) Net Income Approach. Show Answer Correct Answer: A) MM Model with taxes. 13. When is financial leverage profitable? A) When debts are lesser than equity. B) When debts and equity are in balance. C) When the company is growing exponentially. D) When the cost of capital decreases. Show Answer Correct Answer: C) When the company is growing exponentially. 14. Under which of the following situations is a company unlikely to issue equity capital? A) When the debt service coverage ratio is high. B) When the interest coverage ratio is high. C) When the cost of debt capital is low. D) All of the above. Show Answer Correct Answer: D) All of the above. 15. Degree of total leverage can be applied in measuring change in ..... A) Quantity to a percentage change in EBIT. B) EPS to a percentage change in EBIT. C) EBIT to a percentage change in quantity. D) EPS to a percentage change in quantity. Show Answer Correct Answer: D) EPS to a percentage change in quantity. 16. The business risk of a company: A) Depends on the company's level of unsystematic risk. B) Is inversely related to the required return on the company's assets. C) Is dependent upon the relative weights of the debt and equity used to finance the company. D) Has a positive relationship with the company's cost of equity. Show Answer Correct Answer: D) Has a positive relationship with the company's cost of equity. 17. Wonder Plantation wants to increase their financing of $ 1 million by issuing 100, 000 common shares at $ 10/share. Expected EBIT = $ 800, 000Income tax rate is 35%. Calculate the DFL. A) 1.00. B) 1.13. C) 1.25. D) 1.23. Show Answer Correct Answer: A) 1.00. 18. When ROI is high, which of the following options can a company have? A) More Equity. B) Less Debt. C) Both a and b. D) Trading on equity. Show Answer Correct Answer: D) Trading on equity. 19. What do you call the cost of issuing equity shares? A) Cost of Equity. B) Floatation Cost. Show Answer Correct Answer: B) Floatation Cost. 20. A firm has EBIT of. 50, 000. Market value of debt is. 80, 000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is: A) Rs 1, 10, 000. B) Rs 2, 50, 000. C) Rs 30, 000. D) Rs 1, 70, 000. Show Answer Correct Answer: B) Rs 2, 50, 000. 21. MM Proposition I states that in a perfect capital market the total value of a firm is equal to the market value of the ..... generated by its assets. A) Earnings after interest. B) Earnings after taxes. C) Flows after taxes. D) Free cash flows. Show Answer Correct Answer: D) Free cash flows. 22. Which of the following types of enterprises in capital formation on the day of registration, the capital is 100% in material, the capital is in money, 70% can be added, the rest is added later. A) Company Limited. B) Public company. C) A sole proprietorship. D) State enterprises. Show Answer Correct Answer: A) Company Limited. 23. In Q.2 If Who have 10 % of shares of Unlevered firm then what is your income A) Rs. 1300. B) Rs. 2000. C) Rs. 1130. D) None of these. Show Answer Correct Answer: B) Rs. 2000. 24. The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of investors, and other factors. A) TRUE. B) FALSE. Show Answer Correct Answer: B) FALSE. 25. Operating leverage = A) Contribution x Earnings before interest and tax. B) Contribution / Earnings before interest and tax. C) Earnings before interest and tax / Contribution. D) Earnings before interest and tax + Contribution. Show Answer Correct Answer: B) Contribution / Earnings before interest and tax. 26. Calculating the cost of capital based on the company's debt and equity position is a definition of..... A) Weighted Average Cost of Capital. B) Capital Assets Pricing Model. C) Debt-Equity Ratio. D) None of above. Show Answer Correct Answer: A) Weighted Average Cost of Capital. 27. How is the effect of debt ratio (leverage) to the EPS? A) Fall, fall, and fall. B) Fall, bottom out, and rise. C) Rise, peak, and fall. D) Bottom, rise, and fall. Show Answer Correct Answer: C) Rise, peak, and fall. 28. Which of the following statements is not true? A) Increased use of debt increases the financial risk of a business. B) Increased use of debt decreases the financial risk of a business. C) Decrease in use of debt increases the financial risk of a business. D) None of the above. Show Answer Correct Answer: B) Increased use of debt decreases the financial risk of a business. 29. Which of the following is NOT true of working capital? A) It is a measure of the firm's liquidity. B) The amount of money a firm has to spend in the short term. C) It is the amount of capital the firm has available to pay for its operations. D) It is the sum total of a firm's fixed assets. Show Answer Correct Answer: D) It is the sum total of a firm's fixed assets. 30. If the Lessor and Lessee are situated in two different countries, the type of lease is known as ..... A) Import Lease. B) Operating Lease. C) Cross Border Lease. D) Financial Lease. Show Answer Correct Answer: C) Cross Border Lease. ← PreviousNext →Related QuizzesFinance QuizzesCapital Structure Quiz 1Capital Structure Quiz 2Capital Structure Quiz 3Capital Structure Quiz 4Capital Structure Quiz 5Capital Structure Quiz 6Capital Structure Quiz 7Capital Structure Quiz 8Capital Structure Quiz 10 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books