Financial Management
431. Financial Leverage measures relationship between
- EBIT and PBT
- EBIT and EPS
- Sales and PBT
- Sales and EPS
Correct answer: (B)
EBIT and EPS
432. If a firm has a DOL of 2.8, it means:
- If sales increase by 2.8%, the EBIT will increase by 1%
- If EBIT increase by 2.896, the EPS will increase by 1 %
- If sales rise by 1%, EBIT will rise by 2.8%
- None of the above
Correct answer: (C)
If sales rise by 1%, EBIT will rise by 2.8%
433. Benefit of 'Trading on Equity' is available only if:
- Rate of Interest < Rate of Return
- Rate of Interest > Rate of Return
- Both (a) and (b)
- None of (d) and (b)
Correct answer: (A)
Rate of Interest < Rate of Return
434. Between two capital plans, if expected EBIT is more than indifference level of EBIT, then
- Both plans be rejected
- Both plans are good
- One is better than other
- None of the above
Correct answer: (C)
One is better than other
435. In the Traditional Approach, which one of the following remains constant?
- Cost of Equity
- Cost of Debt
- WACC
- None of the above
Correct answer: (D)
None of the above
436. In Traditional Approach, which one is correct?
- ke rises constantly
- kd decreases constantly
- k0 decreases constantly
- None of the above
Correct answer: (D)
None of the above
437. Which of the following is incorrect for value of the firm?
- In the initial preposition, MM Model argues that value is independent of the financing mix
- Total value of levered and unlevered firms is otherwise arbitrage will take place
- Total value incorporates borrowings by firm but excludes personal borrowing
- Total value does not change because underlying does not change with financing mix
Correct answer: (D)
Total value does not change because underlying does not change with financing mix
438. Walter’s Model suggests that a firm can always increase i.e. of the share by
- Increasing Dividend
- Decreasing Dividend
- Constant Dividend
- None of the above
Correct answer: (D)
None of the above
439. Which of the following stresses on investor's preference reorient dividend than higher future capital gains ?
- Walter's Model
- Residuals Theory
- Gordon's Model
- MM Model
Correct answer: (C)
Gordon's Model
440. Gordon's Model of dividend relevance is same as
- No-growth Model of equity valuation
- Constant growth Model of equity valuation
- Price-Earning Ratio
- Inverse of Price Earnings Ratio
Correct answer: (B)
Constant growth Model of equity valuation