On This Page

This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 7

Q1 | Operating leverage arises because of:
  • Fixed Cost of Production
  • Fixed Interest Cost
  • Variable Cost
  • None of the above
Q2 | Financial Leverage arises because of:
  • Fixed cost of production
  • Variable Cost
  • Interest Cost
  • None of the above
Q3 | Operating Leverage is calculated as:
  • Contribution ÷ EBIT
  • EBIT÷PBT
  • EBIT ÷Interest
  • EBIT ÷Tax
Q4 | Financial Leverage is calculated as:
  • EBIT÷ Contribution
  • EBIT÷ PBT
  • EBIT÷ Sales
  • EBIT ÷ Variable Cost
Q5 | Which combination is generally good for firms
  • High OL, High FL
  • Low OL, Low FL
  • High OL, Low FL
  • None of these
Q6 | Combined leverage can be used to measure the relationship between:
  • EBIT and EPS
  • PAT and EPS,
  • Sales and EPS,
  • Sales and EBIT
Q7 | FL is zero if:
  • EBIT = Interest
  • EBIT = Zero,
  • EBIT = Fixed Cost,
  • EBIT = Pref. Dividend
Q8 | Business risk can be measured by:
  • Financial leverage
  • Operating leverage
  • Combined leverage
  • None of the above
Q9 | Financial Leverage measures relationship between
  • EBIT and PBT
  • EBIT and EPS
  • Sales and PBT
  • Sales and EPS
Q10 | Use of Preference Share Capital in Capital structure
  • Increases OL
  • Increases FL
  • Decreases OL
  • Decreases FL
Q11 | Relationship between change in sales and change m is measured by:
  • Financial leverage
  • Combined leverage
  • Operating leverage
  • None of the above
Q12 | Operating leverage works when:
  • Sales Increases
  • Sales Decreases
  • Both (a) and (b)
  • None of (a) and (b)
Q13 | Which of the following is correct?
  • CL= OL + FL
  • CL=OL-FL
  • OL= OL × FL
  • OL=OL÷FL
Q14 | If the fixed cost of production is zero, which one of the following is correct?
  • OL is zero
  • FL is zero
  • CL is zero
  • None of the above
Q15 | If a firm has no debt, which one is correct?
  • OL is one
  • FL is one
  • OL is zero
  • FL is zero
Q16 | If a company issues new share capital to redeem debentures, then:
  • OL will increase
  • FL will increase
  • OL will decrease
  • FL will decrease
Q17 | 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
Q18 | Higher OL is related to the use of higher:
  • Debt
  • Equity
  • Fixed Cost
  • Variable Cost
Q19 | Higher FL is related the use of:
  • Higher Equity
  • Higher Debt
  • Lower Debt
  • None of the above
Q20 | In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:
  • MP of Equity Shares
  • Number of Equity Shares
  • Face Value of Equity Shares
  • None of the above.
Q21 | Trading on Equity is
  • Always beneficial
  • May be beneficial
  • Never beneficial
  • None of the above.
Q22 | 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) (d) None of
  • and (b)
Q23 | Indifference Level of EBIT is one at which:
  • EPS is zero
  • EPS is Minimum
  • EPS is highest
  • None of these
Q24 | Financial Break-even level of EBIT is one at which:
  • EPS is one
  • EPS is zero
  • EPS is Infinite
  • EPS is Negative
Q25 | Relationship between change in Sales and d Operating Profit is known as:
  • Financial Leverage
  • Operating Leverage
  • Net Profit Ratio
  • Gross Profit Ratio