Financial Management

331. Operating leverage works when:

  1. Sales Increases
  2. Sales Decreases
  3. Both (a) and (b)
  4. None of (a) and (b)
Correct answer: (C)
Both (a) and (b)

332. Higher OL is related to the use of higher:

  1. Debt
  2. Equity
  3. Fixed Cost
  4. Variable Cost
Correct answer: (C)
Fixed Cost

333. Indifference Level of EBIT is one at which:

  1. EPS is zero
  2. EPS is Minimum
  3. EPS is highest
  4. None of these
Correct answer: (D)
None of these

334. Which of the following is not a relevant factor m EPS Analysis of capital structure?

  1. Rate of Interest on Debt
  2. Tax Rate
  3. Amount of Preference Share Capital
  4. Dividend paid last year
Correct answer: (D)
Dividend paid last year

335. In case of Net Income Approach, when the debt proportion is increased, the cost of debt:

  1. Increases
  2. Decreases
  3. Constant
  4. None of the above
Correct answer: (C)
Constant

336. 'Judicious use of leverage' is suggested by:

  1. Net Income Approach
  2. Net Operating Income Approach
  3. Traditional Approach
  4. All of the above
Correct answer: (C)
Traditional Approach

337. Which of the following argues that the value of levered firm is higher than that of the unlevered firm?

  1. Net Income Approach
  2. Net Operating Income Approach
  3. MM Model with taxes
  4. Both (a) and (c)
Correct answer: (D)
Both (a) and (c)

338. 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:

  1. 2,50,000
  2. 1,70,000
  3. 30,000
  4. 1,30,000
Correct answer: (B)
1,70,000

339. Walter’s Model suggests for 100% DP Ratio when

  1. ke = r
  2. ke < r
  3. ke > r
  4. ke = 0
Correct answer: (C)
ke > r

340. Which of the following is not true for MM Model?

  1. Share price goes up if dividend is paid
  2. Share price goes down if dividend is not paid
  3. Market value is unaffected by Dividend policy
  4. All of the above
Correct answer: (C)
Market value is unaffected by Dividend policy
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