Financial Management Set 8

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

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This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 8

Q1 | If a firm has no Preference share capital, Financial Break even level is defined asequal to -
  • EBIT
  • Interest liability
  • Equity Dividend
  • Tax Liability
Answer: Interest liability
Q2 | At Indifference level of EBIT, different capital have
  • Same EBIT
  • Same EPS
  • Same PAT
  • Same PBT
Answer: Same EPS
Q3 | Which of the following is not a relevant factor m EPS Analysis of capital structure?
  • Rate of Interest on Debt
  • Tax Rate
  • Amount of Preference Share Capital
  • Dividend paid last year
Answer: Dividend paid last year
Q4 | For a constant EBIT, if the debt level is further increased then
  • EPS will always increase
  • EPS may increase
  • EPS will never increase
  • None of the above
Answer: EPS may increase
Q5 | Between two capital plans, if expected EBIT is more than indifference level of EBIT,then
  • Both plans be rejected
  • Both plans are good
  • One is better than other
  • None of the above
Answer: One is better than other
Q6 | Financial break-even level of EBIT is:
  • Intercept at Y-axis,
  • Intercept at X-axis
  • Slope of EBIT-EPS line
  • None of the above.
Answer: Intercept at X-axis
Q7 | In case of Net Income Approach, the Cost of equity is:
  • Constant
  • Increasing
  • Decreasing
  • None of the above
Answer: Constant
Q8 | In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
  • Increases
  • Decreases
  • Constant
  • None of the above
Answer: Constant
Q9 | Which of the following is true of Net Income Approach?
  • VF = VE+VD
  • VE = VF+VD
  • VD = VF+VE
  • VF = VE-VE
Answer: VF = VE+VD
Q10 | Net Operating Income Approach, which one of the lowing is constant?
  • Cost of Equity
  • Cost of Debt
  • WACC & kd
  • Ke and Kd
Answer: WACC & kd
Q11 | NOI Approach advocates that the degree of debt financing is:
  • Relevant
  • May be relevant
  • Irrelevant
  • May be irrelevant
Answer: Irrelevant
Q12 | 'Judicious use of leverage' is suggested by:
  • Net Income Approach
  • Net Operating Income Approach
  • Traditional Approach
  • All of the above
Answer: Traditional Approach
Q13 | Which one is true for Net Operating Income Approach?
  • VD = VF - VE
  • VE = VF + VD
  • VE = VF - VD
  • VD = VF + VE
Answer: VE = VF - VD
Q14 | In the Traditional Approach, which one of the following remains constant?
  • Cost of Equity
  • Cost of Debt
  • WACC
  • None of the above
Answer: None of the above
Q15 | In MM-Model, irrelevance of capital structure is based on:
  • Cost of Debt and Equity
  • Arbitrage Process
  • Decreasing k0
  • All of the above
Answer: Arbitrage Process
Q16 | 'That there is no corporate tax' is assumed by:
  • Net Income Approach
  • Net Operating Income Approach,
  • Traditional Approach
  • All of these
Answer: All of these
Q17 | 'That personal leverage can replace corporate leverage' is assumed by:
  • Traditional Approach
  • MM Model
  • Net Income Approach
  • Net Operating Income Approach.
Answer: MM Model
Q18 | Which of the following argues that the value of levered firm is higher than that of theunlevered firm?
  • Net Income Approach
  • Net Operating Income Approach
  • MM Model with taxes
  • Both (a) and (c)
Answer: Both (a) and (c)
Q19 | In Traditional Approach, which one is correct?
  • ke rises constantly
  • kd decreases constantly
  • k0 decreases constantly
  • None of the above
Answer: None of the above
Q20 | Which of the following assumes constant kd and ke?
  • Net Income Approach
  • Net Operating Income Approach
  • Traditional Approach
  • MM Model.
Answer: Net Income Approach
Q21 | Which of the following is true?
  • Under Traditional Approach, overall cost of capital remains same,
  • Under NI Approach, overall cost of capital remains same,
  • Under NOI Approach, overall cost of capital remains same,
  • None of the above.
Answer: Under NOI Approach, overall cost of capital remains same,
Q22 | The Traditional Approach to Value of the firm m that:
  • There is no optimal capital structure,
  • Value can be increased by judicious use of leverage
  • Cost of Capital and Capital structure are m dent,
  • Risk of the firm is independent of capital structure
Answer: Value can be increased by judicious use of leverage
Q23 | A firm has EBIT of . 50,000. Market value of debt is . 80,000 and overallcapitalization rate is 20%. Market value of firm under NOI Approach is:
  • 2,50,000
  • 1,70,000
  • 30,000
  • 1,30,000.
Answer: 1,70,000
Q24 | Which of the following is incorrect for NOI?
  • k0 is constant
  • kd is constant
  • ke is constant
  • kd & k0 are constant
Answer: ke is constant
Q25 | Which of the following is incorrect for value of the firm?
  • In the initial preposition, MM Model argues that value is independent of the financing mix.
  • Total value of levered and unlevered firms is otherwise arbitrage will take place.
  • Total value incorporates borrowings by firm but excludes personal borrowing.
  • Total value does not change because underlying does not change with financing mix.
Answer: Total value does not change because underlying does not change with financing mix.
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