Financial Management
541. Which of the following is true?
- Retained earnings are cost free
- External Equity is cheaper than Internal Equity
- Retained Earnings are cheaper than External Equity
- Retained Earnings are costlier than External Equity
Correct answer: (C)
Retained Earnings are cheaper than External Equity
542. The term capital structure denotes:
- Total of Liability side of Balance Sheet
- Equity Funds, Preference Capital and Long term Debt
- Total Shareholders Equity
- 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:
- Addition
- Subtraction
- Multiplication
- Any of these
Correct answer: (C)
Multiplication
544. Which combination is generally good for firms
- High OL, High FL
- Low OL, Low FL
- High OL, Low FL
- None of these
Correct answer: (C)
High OL, Low FL
545. Which of the following is correct?
- CL= OL + FL
- CL=OL-FL
- OL= OL × FL
- OL=OL÷FL
Correct answer: (C)
OL= OL × FL
546. Trading on Equity is
- Always beneficial
- May be beneficial
- Never beneficial
- None of the above
Correct answer: (B)
May be beneficial
547. For a constant EBIT, if the debt level is further increased then
- EPS will always increase
- EPS may increase
- EPS will never increase
- None of the above
Correct answer: (B)
EPS may increase
548. Which of the following is true of Net Income Approach?
- VF = VE+VD
- VE = VF+VD
- VD = VF+VE
- VF = VE-VE
Correct answer: (A)
VF = VE+VD
549. 'That personal leverage can replace corporate leverage' is assumed by:
- Traditional Approach
- MM Model
- Net Income Approach
- 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:
- r×D×t
- r×D
- D×t
- (D× r)/(l-t)
Correct answer: (C)
D×t