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This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 6

Q1 | Which is the most expensive source of funds?
  • New Equity Shares
  • New Preference Shares
  • New Debts
  • Retained Earnings
Q2 | Marginal cost of capital is the cost of:
  • Additional Sales
  • Additional Funds
  • Additional Interests
  • None of the above.
Q3 | In case the firm is all-equity financed, WACC would be equal to
  • Cost of Debt
  • Cost of Equity
  • Neither (a) nor (b)
  • Both (a) and (b)
Q4 | In case of partially debt-financed firm, k0 is less
  • Kd
  • Ke
  • Both (a) and (b)
  • None of the above
Q5 | In order to calculate Weighted Average Cost of weights may be based on:
  • Market Values
  • Target Values
  • Book Values
  • All of the above
Q6 | Firm's Cost of Capital is the average cost of:
  • All sources
  • All borrowings
  • Share capital
  • Share Bonds & Debentures
Q7 | An implicit cost of increasing proportion of debt is:
  • Tax should would not be available on new debt
  • P.E. Ratio would increase
  • Equity shareholders would demand higher return
  • Rate of Return of the company would decrease
Q8 | Cost of Redeemable Preference Share Capital is:
  • Rate of Dividend
  • After Tax Rate of Dividend
  • Discount Rate that equates PV of inflows and out-flows relating to capital
  • None of the above
Q9 | 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
Q10 | Cost of capital may be defined as:
  • Weighted Average cost of all debts
  • Rate of Return expected by Equity Shareholders
  • Average IRR of the Projects of the firm
  • Minimum Rate of Return that the firm should earn
Q11 | Minimum Rate of Return that a firm must earn in order to satisfy its investors, is alsoknown as:
  • Average Return on Investment
  • Weighted Average Cost of Capital
  • Net Profit Ratio
  • Average Cost of borrowing
Q12 | Cost Capital for Equity Share Capital does not imply that:
  • Market Price is equal to Book Value of share,
  • Shareholders are ready to subscribe to right issue,
  • .Market Price is more than Issue Price,
  • AC of the three above.
Q13 | In order to calculate the proportion of equity financing used by the company, thefollowing should be used:
  • Authorised Share Capital,
  • Equity Share Capital plus Reserves and Surplus,
  • Equity Share Capital plus Preference Share Capital,
  • Equity Share Capital plus Long-term Debt.
Q14 | 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.
Q15 | Debt Financing is a cheaper source of finance because of:
  • Time Value of Money
  • Rate of Interest,
  • Tax-deductibility of Interest
  • Dividends not Payable to lenders.
Q16 | In order to find out cost of equity capital under CAPM, which of the following is notrequired:
  • Beta Factor
  • Market Rate of Return,
  • Market Price of Equity Share
  • Risk-free Rate of Interest.
Q17 | Tax-rate is relevant and important for calculation of specific cost of capital of:
  • Equity Share Capital
  • Preference Share Capital
  • Debentures
  • (a) and (b) above.
Q18 | Advantage of Debt financing is
  • Interest is tax-deductible
  • It reduces WACC
  • Does not dilute owners control
  • All of the above.
Q19 | Cost of issuing new shares to the public is known as:
  • Cost of Equity
  • Cost of Capital
  • Flotation Cost
  • Marginal Cost of Capital.
Q20 | Cost of Equity Share Capital is more than cost of debt because:
  • Face value of debentures is more than face value of shares,
  • Equity shares have higher risk than debt,
  • Equity shares are easily saleable
  • All of the three above.
Q21 | Which of the following is not a generally accepted approach for Calculation of Cost ofEquity?
  • CAPM
  • Dividend Discount Model
  • Rate of Pref. Dividend Plus Risk
  • Price-Earnings Ratio
Q22 | Operating leverage helps in analysis of:
  • Business Risk
  • Financing Risk
  • Production Risk
  • Credit Risk
Q23 | Which of the following is studied with the help of financial leverage?
  • Marketing Risk
  • Interest Rate Risk
  • Foreign Exchange Risk
  • Financing risk
Q24 | Combined Leverage is obtained from OL and FL by their:
  • Addition
  • Subtraction
  • Multiplication
  • Any of these
Q25 | High degree of financial leverage means:
  • High debt proportion
  • Lower debt proportion
  • Equal debt and equity
  • No debt