McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Business Administration (BBA) , Master of Commerce (M.com) , Bachelor of Accounting and Finance (BAF) , Bachelor of Business Administration in Finance (BBA Finance) , Cost Accounting .
| 151. |
Operating leverage arises because of: |
| A. | Fixed Cost of Production |
| B. | Fixed Interest Cost |
| C. | Variable Cost |
| D. | None of the above |
| Answer» A. Fixed Cost of Production | |
| 152. |
Financial Leverage arises because of: |
| A. | Fixed cost of production |
| B. | Variable Cost |
| C. | Interest Cost |
| D. | None of the above |
| Answer» C. Interest Cost | |
| 153. |
Operating Leverage is calculated as: |
| A. | Contribution ÷ EBIT |
| B. | EBIT÷PBT |
| C. | EBIT ÷Interest |
| D. | EBIT ÷Tax |
| Answer» A. Contribution ÷ EBIT | |
| 154. |
Financial Leverage is calculated as: |
| A. | EBIT÷ Contribution |
| B. | EBIT÷ PBT |
| C. | EBIT÷ Sales |
| D. | EBIT ÷ Variable Cost |
| Answer» B. EBIT÷ PBT | |
| 155. |
Which combination is generally good for firms |
| A. | High OL, High FL |
| B. | Low OL, Low FL |
| C. | High OL, Low FL |
| D. | None of these |
| Answer» C. High OL, Low FL | |
| 156. |
Combined leverage can be used to measure the relationship between: |
| A. | EBIT and EPS |
| B. | PAT and EPS, |
| C. | Sales and EPS, |
| D. | Sales and EBIT |
| Answer» C. Sales and EPS, | |
| 157. |
FL is zero if: |
| A. | EBIT = Interest |
| B. | EBIT = Zero, |
| C. | EBIT = Fixed Cost, |
| D. | EBIT = Pref. Dividend |
| Answer» B. EBIT = Zero, | |
| 158. |
Business risk can be measured by: |
| A. | Financial leverage |
| B. | Operating leverage |
| C. | Combined leverage |
| D. | None of the above |
| Answer» B. Operating leverage | |
| 159. |
Financial Leverage measures relationship between |
| A. | EBIT and PBT |
| B. | EBIT and EPS |
| C. | Sales and PBT |
| D. | Sales and EPS |
| Answer» B. EBIT and EPS | |
| 160. |
Use of Preference Share Capital in Capital structure |
| A. | Increases OL |
| B. | Increases FL |
| C. | Decreases OL |
| D. | Decreases FL |
| Answer» B. Increases FL | |
| 161. |
Relationship between change in sales and change m is measured by: |
| A. | Financial leverage |
| B. | Combined leverage |
| C. | Operating leverage |
| D. | None of the above |
| Answer» B. Combined leverage | |
| 162. |
Operating leverage works when: |
| A. | Sales Increases |
| B. | Sales Decreases |
| C. | Both (a) and (b) |
| D. | None of (a) and (b) |
| Answer» C. Both (a) and (b) | |
| 163. |
Which of the following is correct? |
| A. | CL= OL + FL |
| B. | CL=OL-FL |
| C. | OL= OL × FL |
| D. | OL=OL÷FL |
| Answer» C. OL= OL × FL | |
| 164. |
If the fixed cost of production is zero, which one of the following is correct? |
| A. | OL is zero |
| B. | FL is zero |
| C. | CL is zero |
| D. | None of the above |
| Answer» D. None of the above | |
| 165. |
If a firm has no debt, which one is correct? |
| A. | OL is one |
| B. | FL is one |
| C. | OL is zero |
| D. | FL is zero |
| Answer» B. FL is one | |
| 166. |
If a company issues new share capital to redeem debentures, then: |
| A. | OL will increase |
| B. | FL will increase |
| C. | OL will decrease |
| D. | FL will decrease |
| Answer» D. FL will decrease | |
| 167. |
If a firm has a DOL of 2.8, it means: |
| A. | If sales increase by 2.8%, the EBIT will increase by 1%, |
| B. | If EBIT increase by 2.896, the EPS will increase by 1 %, |
| C. | If sales rise by 1%, EBIT will rise by 2.8%, |
| D. | None of the above |
| Answer» C. If sales rise by 1%, EBIT will rise by 2.8%, | |
| 168. |
Higher OL is related to the use of higher: |
| A. | Debt |
| B. | Equity |
| C. | Fixed Cost |
| D. | Variable Cost |
| Answer» C. Fixed Cost | |
| 169. |
Higher FL is related the use of: |
| A. | Higher Equity |
| B. | Higher Debt |
| C. | Lower Debt |
| D. | None of the above |
| Answer» B. Higher Debt | |
| 170. |
In order to calculate EPS, Profit after Tax and Preference Dividend is divided by: |
| A. | MP of Equity Shares |
| B. | Number of Equity Shares |
| C. | Face Value of Equity Shares |
| D. | None of the above. |
| Answer» B. Number of Equity Shares | |
| 171. |
Trading on Equity is |
| A. | Always beneficial |
| B. | May be beneficial |
| C. | Never beneficial |
| D. | None of the above. |
| Answer» B. May be beneficial | |
| 172. |
Benefit of 'Trading on Equity' is available only if: |
| A. | Rate of Interest < Rate of Return |
| B. | Rate of Interest > Rate of Return |
| C. | Both (a) and (b) |
| D. | None of the above |
| Answer» A. Rate of Interest < Rate of Return | |
| 173. |
Indifference Level of EBIT is one at which: |
| A. | EPS is zero |
| B. | EPS is Minimum |
| C. | EPS is highest |
| D. | None of these |
| Answer» D. None of these | |
| 174. |
Financial Break-even level of EBIT is one at which: |
| A. | EPS is one |
| B. | EPS is zero |
| C. | EPS is Infinite |
| D. | EPS is Negative |
| Answer» B. EPS is zero | |
| 175. |
Relationship between change in Sales and d Operating Profit is known as: |
| A. | Financial Leverage |
| B. | Operating Leverage |
| C. | Net Profit Ratio |
| D. | Gross Profit Ratio |
| Answer» B. Operating Leverage | |
| 176. |
If a firm has no Preference share capital, Financial Break even level is defined as equal to - |
| A. | EBIT |
| B. | Interest liability |
| C. | Equity Dividend |
| D. | Tax Liability |
| Answer» B. Interest liability | |
| 177. |
At Indifference level of EBIT, different capital have |
| A. | Same EBIT |
| B. | Same EPS |
| C. | Same PAT |
| D. | Same PBT |
| Answer» B. Same EPS | |
| 178. |
Which of the following is not a relevant factor m EPS Analysis of capital structure? |
| A. | Rate of Interest on Debt |
| B. | Tax Rate |
| C. | Amount of Preference Share Capital |
| D. | Dividend paid last year |
| Answer» D. Dividend paid last year | |
| 179. |
For a constant EBIT, if the debt level is further increased then |
| A. | EPS will always increase |
| B. | EPS may increase |
| C. | EPS will never increase |
| D. | None of the above |
| Answer» B. EPS may increase | |
| 180. |
Between two capital plans, if expected EBIT is more than indifference level of EBIT, then |
| A. | Both plans be rejected |
| B. | Both plans are good |
| C. | One is better than other |
| D. | None of the above |
| Answer» C. One is better than other | |
| 181. |
Financial break-even level of EBIT is: |
| A. | Intercept at Y-axis, |
| B. | Intercept at X-axis |
| C. | Slope of EBIT-EPS line |
| D. | None of the above. |
| Answer» B. Intercept at X-axis | |
| 182. |
In case of Net Income Approach, the Cost of equity is: |
| A. | Constant |
| B. | Increasing |
| C. | Decreasing |
| D. | None of the above |
| Answer» A. Constant | |
| 183. |
In case of Net Income Approach, when the debt proportion is increased, the cost of debt: |
| A. | Increases |
| B. | Decreases |
| C. | Constant |
| D. | None of the above |
| Answer» C. Constant | |
| 184. |
Which of the following is true of Net Income Approach? |
| A. | VF = VE+VD |
| B. | VE = VF+VD |
| C. | VD = VF+VE |
| D. | VF = VE-VE |
| Answer» A. VF = VE+VD | |
| 185. |
Net Operating Income Approach, which one of the lowing is constant? |
| A. | Cost of Equity |
| B. | Cost of Debt |
| C. | WACC & kd |
| D. | Ke and Kd |
| Answer» C. WACC & kd | |
| 186. |
NOI Approach advocates that the degree of debt financing is: |
| A. | Relevant |
| B. | May be relevant |
| C. | Irrelevant |
| D. | May be irrelevant |
| Answer» C. Irrelevant | |
| 187. |
'Judicious use of leverage' is suggested by: |
| A. | Net Income Approach |
| B. | Net Operating Income Approach |
| C. | Traditional Approach |
| D. | All of the above |
| Answer» C. Traditional Approach | |
| 188. |
Which one is true for Net Operating Income Approach? |
| A. | VD = VF - VE |
| B. | VE = VF + VD |
| C. | VE = VF - VD |
| D. | VD = VF + VE |
| Answer» C. VE = VF - VD | |
| 189. |
In the Traditional Approach, which one of the following remains constant? |
| A. | Cost of Equity |
| B. | Cost of Debt |
| C. | WACC |
| D. | None of the above |
| Answer» D. None of the above | |
| 190. |
In MM-Model, irrelevance of capital structure is based on: |
| A. | Cost of Debt and Equity |
| B. | Arbitrage Process |
| C. | Decreasing k0 |
| D. | All of the above |
| Answer» B. Arbitrage Process | |
| 191. |
'That there is no corporate tax' is assumed by: |
| A. | Net Income Approach |
| B. | Net Operating Income Approach, |
| C. | Traditional Approach |
| D. | All of these |
| Answer» D. All of these | |
| 192. |
'That personal leverage can replace corporate leverage' is assumed by: |
| A. | Traditional Approach |
| B. | MM Model |
| C. | Net Income Approach |
| D. | Net Operating Income Approach. |
| Answer» B. MM Model | |
| 193. |
Which of the following argues that the value of levered firm is higher than that of the unlevered firm? |
| A. | Net Income Approach |
| B. | Net Operating Income Approach |
| C. | MM Model with taxes |
| D. | Both (a) and (c) |
| Answer» D. Both (a) and (c) | |
| 194. |
In Traditional Approach, which one is correct? |
| A. | ke rises constantly |
| B. | kd decreases constantly |
| C. | k0 decreases constantly |
| D. | None of the above |
| Answer» D. None of the above | |
| 195. |
Which of the following assumes constant kd and ke? |
| A. | Net Income Approach |
| B. | Net Operating Income Approach |
| C. | Traditional Approach |
| D. | MM Model. |
| Answer» A. Net Income Approach | |
| 196. |
Which of the following is true? |
| A. | Under Traditional Approach, overall cost of capital remains same, |
| B. | Under NI Approach, overall cost of capital remains same, |
| C. | Under NOI Approach, overall cost of capital remains same, |
| D. | None of the above. |
| Answer» C. Under NOI Approach, overall cost of capital remains same, | |
| 197. |
The Traditional Approach to Value of the firm m that: |
| A. | There is no optimal capital structure, |
| B. | Value can be increased by judicious use of leverage |
| C. | Cost of Capital and Capital structure are m dent, |
| D. | Risk of the firm is independent of capital structure |
| Answer» B. Value can be increased by judicious use of leverage | |
| 198. |
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: |
| A. | 2,50,000 |
| B. | 1,70,000 |
| C. | 30,000 |
| D. | 1,30,000. |
| Answer» B. 1,70,000 | |
| 199. |
Which of the following is incorrect for NOI? |
| A. | k0 is constant |
| B. | kd is constant |
| C. | ke is constant |
| D. | kd & k0 are constant |
| Answer» C. ke is constant | |
| 200. |
Which of the following is incorrect for value of the firm? |
| A. | In the initial preposition, MM Model argues that value is independent of the financing mix. |
| B. | Total value of levered and unlevered firms is otherwise arbitrage will take place. |
| C. | Total value incorporates borrowings by firm but excludes personal borrowing. |
| D. | Total value does not change because underlying does not change with financing mix. |
| Answer» D. Total value does not change because underlying does not change with financing mix. | |
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