Financial Management

541. Which of the following is true?

  1. Retained earnings are cost free
  2. External Equity is cheaper than Internal Equity
  3. Retained Earnings are cheaper than External Equity
  4. Retained Earnings are costlier than External Equity
Correct answer: (C)
Retained Earnings are cheaper than External Equity

542. The term capital structure denotes:

  1. Total of Liability side of Balance Sheet
  2. Equity Funds, Preference Capital and Long term Debt
  3. Total Shareholders Equity
  4. Types of Capital Issued by a Company
Correct answer: (B)
Equity Funds, Preference Capital and Long term Debt

543. Combined Leverage is obtained from OL and FL by their:

  1. Addition
  2. Subtraction
  3. Multiplication
  4. Any of these
Correct answer: (C)
Multiplication

544. Which combination is generally good for firms

  1. High OL, High FL
  2. Low OL, Low FL
  3. High OL, Low FL
  4. None of these
Correct answer: (C)
High OL, Low FL

545. Which of the following is correct?

  1. CL= OL + FL
  2. CL=OL-FL
  3. OL= OL × FL
  4. OL=OL÷FL
Correct answer: (C)
OL= OL × FL

546. Trading on Equity is

  1. Always beneficial
  2. May be beneficial
  3. Never beneficial
  4. None of the above
Correct answer: (B)
May be beneficial

547. For a constant EBIT, if the debt level is further increased then

  1. EPS will always increase
  2. EPS may increase
  3. EPS will never increase
  4. None of the above
Correct answer: (B)
EPS may increase

548. Which of the following is true of Net Income Approach?

  1. VF = VE+VD
  2. VE = VF+VD
  3. VD = VF+VE
  4. VF = VE-VE
Correct answer: (A)
VF = VE+VD

549. 'That personal leverage can replace corporate leverage' is assumed by:

  1. Traditional Approach
  2. MM Model
  3. Net Income Approach
  4. Net Operating Income Approach
Correct answer: (B)
MM Model

550. In MM Model with taxes, where 'r' is the interest rate, ‘D’ is the total debt and 't' is tax rate, then present valued shields would be:

  1. r×D×t
  2. r×D
  3. D×t
  4. (D× r)/(l-t)
Correct answer: (C)
D×t
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