19/12/2023, 13:37 2nd Module Assessment
Dashboard / My courses / Financial Management (FIBA601)-Semester II / #Module II: Financing Decision
/ 2nd Module Assessment
Question 1
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Leverage analysis involves the examination of the relationship between:
a. Earnings before interest and taxes (EBIT) and earnings per share (EPS)
b. Debt and equity financing
c. Cost of capital and weighted average cost of capital (WACC)
d. Net income and operating income
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Question 2
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The pecking order theory of capital structure implies that companies:
a. Prefer internal financing over external financing
b. Prefer debt financing over equity financing
c. Prefer equity financing over debt financing
d. Have no specific preference for any type of financing
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19/12/2023, 13:37 2nd Module Assessment
Question 3
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Factors determining the optimum capital structure include:
a. Business risk and financial risk
b. Market risk and liquidity risk
c. Operational risk and credit risk
d. Economic risk and political risk
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Question 4
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The net operating income approach to capital structure emphasizes the relationship between:
a. Earnings before interest and taxes (EBIT) and net income
b. Earnings before interest and taxes (EBIT) and earnings per share (EPS)
c. Net operating income and net income
d. Net operating income and earnings per share (EPS)
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Question 5
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Which approach to capital structure focuses on the relationship between net income and earnings per share (EPS)?
a. Net operating income approach
b. Traditional approach
c. Modigliani-Miller approach
d. Pecking order theory approach
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19/12/2023, 13:37 2nd Module Assessment
Question 6
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The weighted average cost of capital (WACC) is a measure of:
a. The average cost of equity and debt
b. The average cost of debt and retained earnings
c. The average cost of all sources of capital
d. The average cost of debt and preferred stock
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Question 7
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The weighted marginal cost of capital (WMCC) incorporates the concept of:
a. Marginal tax rate
b. The marginal cost of debt
c. The marginal cost of equity
d. The marginal cost of retained earnings
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Question 8
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The computation of cost of capital involves the determination of:
a. The interest expense on debt
b. The weighted average cost of equity
c. The net operating income
d. The retained earnings of the company
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19/12/2023, 13:37 2nd Module Assessment
Question 9
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The trade-off theory of capital structure suggests that:
a. Companies should aim for the highest level of debt possible
b. Companies should minimize their reliance on debt financing
c. The optimal capital structure is determined by the availability of external financing
d. The capital structure has no impact on a company's financial performance
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Question 10
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The traditional approach to capital structure is based on the assumption that:
a. Debt is less risky than equity
b. Debt is more risky than equity
c. Debt and equity have equal risk
d. The risk associated with debt and equity cannot be determined
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Question 11
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Marked out of 2.00
The pecking order theory suggests that companies prioritize financing sources based on:
a. The availability of external financing
b. The cost of capital
c. The preferences of shareholders
d. The industry in which the company operates
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19/12/2023, 13:37 2nd Module Assessment
Question 12
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The net operating income (NOI) approach to capital structure theory focuses on the relationship between:
a. Operating income and net income
b. Operating income and earnings per share (EPS)
c. Operating income and the cost of debt
d. Operating income and the cost of equity
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Question 13
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The net income approach to capital structure theory suggests that the value of a firm is maximized when:
a. The debt-equity ratio is zero
b. The debt-equity ratio is maximized
c. The debt-equity ratio is minimized
d. The debt-equity ratio is equal to one
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Question 14
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Which factor is NOT considered when determining the optimum capital structure?
a. Business risk
b. Financial risk
c. Market risk
d. Political risk
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19/12/2023, 13:37 2nd Module Assessment
Question 15
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Given- Operating fixed costs INR. 20,000, Operating fixed costs 20,000, P/ V ratio 40% . The operating leverage is:…......
a. 2.00
b. 2.50
c. 2.67
d. 2.47
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Question 16
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Given: risk-free rate of return = 5 % market return = 10%, cost of equity = 15% value of beta (β) is:
a. 1.9
b. 1.8
c. 2.0
d. 2.2
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Question 17
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If EBIT is INR. 15,00,000, interest is 2,50,000, corporate tax is 40%, degree of financial leverage is
a. 1.11
b. 1.2
c. 1.31
d. 1.41
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◄ Test Your Understanding_2.16_Optimum Capital Structure
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19/12/2023, 13:37 2nd Module Assessment
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