Financial Management Set 6
On This Page
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