22.

1 MULTIPLE CHOICE QUESTIONS

1. Indifference Level of EBIT is one at which
Minimum
(a) EPS is zero (b) EPS is
these
(c) EPS is highest (d) None of
2. Financial Break-even level of EBIT is one at which
EPS is EPS is zero (b)
(a) one
EPS is negative
(d)
(c) EPS is infinite Profit is known as
3. Relationship between change in Sales and d Operating
(b) Operating Leverage
(a) Financial Leverage
(d) Gross Profit Ratio
(c) Net Profit Ratio level is defined as equal
to
Financial Break even
4. fa firm has no Preference share capital,
(b) Interest liability
(a) EBIT
(c) Equity Dividend
(d) Tax Liability
different capital have
5. At Indifference level of EBIT,
(b) Same EPS
(a) Same EBIT
(d) Same PBT
(c) Same PAT
a relevant factor in EPS Analysis of capital structure?
66. Which of the following is not Debt (b) Tax Rate
Rate of Interest on
(a) (d) Dividend paid last year
Amount of Preference Share Capital
c) debt level is further increased then
7. For a constant EBIT, if the
increase (b) EPS may increase
(a) EPS will always
(d) None of the above
never increase
c) EPS will
capital plans, if expected Ebil S more tnan indifference level of FRIT thon
8. Between two
(b) Both plans are good
(a) Both plans be rejected (d) None of the above
other
(c) One is better than
 (d) Net
Net Oper ating Ind
Operating
(c) Net inco ina arques that
that the value of leverart Approach
19.Which of the following argues levered firm is
higher than that of the
firm ? unievered
(a) Net Income
Approach (b) Net Operating Income
(c) MM Model
with taxes (d) Both (a) and (c) Approach
which one is correct?
20.In Traditional Approach,
(a) K, rises constantly (b) K decreases constantly
(c) K, decreases constantly (d) None of the above
21.Which of the following assumes
constant K, and K.?
(a) Net Income Approach (b) Net Operating Income
(c) Traditional Approach (d) MM Model
Approach
22. Which of the following is true?
(a) Under Traditional Approach, overall cost of capital remains same

(D) Under NI Approach, overall cost of capital remains same

(c) Under NOI Approach, overall cost of capital remains same

(d) None of the above

23. The Traditional Approach to value of the firm is that
a) There is no optimal capital structure
(b) Value can be increased by judicious use of leverage
(c) Cost of Capital and Capital structure are independent
(d) Risk of the fim is independent of capital structure
24. A firm has EBIT of T 50,000. Market value of debt is F 80,000 and overall capitalization rate is
20%. Market value of firm under NOI Approach is
(a) 2,50,000 (b) 1,70,000
(c) 30,000 (d) 1,30,000
 None of the above
ASNN Ltd., has the following data
Market value of equlty
6 0 lakh

Market value of debt

740 lakh

Cost of equlty 17%

Cost of debt 15% the net operatinginco.
the regime
of no taxes, come for
is under
m operating
the fim is
14.2 lakh
(a) 13.2 lakh (b) 7
16.2 lakh
(c) 15.2 lakh (d) 7
(e) 17.2 lakh
42. Floatation cost is associated with
term loan
(a) Cost of existing preference capital (b) Cost of
external equity
(c) Cost of existing debenture capital (d) Cost of
(e) Cost of retained earnings
which of the the limitation(s) of
following is / are
Walter's modei
Tor all equityfims
make the model suitable oniy
xCluSIve financing by retained earnings investment will not be constant.
i n case of high investments the return on on the value of
the firm, tnus cost of equity
risk of the firm has a direct impact
usiness
capital cannot be constant.
above
(a) Only (i) above (b) Only (i)
and (ii) above
(c) Both () and (i) above (d) Both (ii)
(e) All (i), (i) and (i) above
Ltd.
A. The following information is collected from the annual report of Wilson
Net profit T6.00 crore

Dividend pay out ratio 40 percent

Number of outstanding shares 60,00,000
Equity capitalization rate 12 percent
Rate of return on investment 16 percent
What is market price per share according to Walter's model on dividend policy?
(a) 4 0 (b) 60
(c) 80 (d)F 100
(e) 7 120
45. Which of the following statements is false regarding assumption made under the Modigliani and
Miller approach for dividend policy of a firm?
(a) Existence of pefect capital markets
(b) Non-existence of differential tax rates for the dividend income and capital gains
(c) Constant investment policy the firm
of

(d) Existence of floatation and the transaction costs

fe) Non-influence of single
investor on the share value
Which of the folowing stalements sare true regarding the Capital structure decision?
managerial decision which inluences the risk and return of the
i The company has to plan nS capital structure at the time of promotion investors.
only.
iil The capital structure ora pany tErers to the mix of long-term finances.
above
(a) Only () (6) Only () above
and () above
(c) Both () (d) Both () and (ii)
Both () and (i) above above
(e)