Financial Management Set 7
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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