Deck 4: Capital Structure, Valuation, and Financing

Question 1

In …… approach says that capital structure decision is relevant to the valuation of the firm.

A)Traditional
B)Net income
C)Modiglani and Millers
D)Net operating income

Answer 1

Net income

Question 2

______ is defined as the length of time required to recover the initial cash outlay.

A)Payback period
B)Discounted cash back
C)IRR
D)NPV

Answer 2

Payback period

Question 3

The term capital structure refers to…………..

A)Shareholders equity
B)Current asset and current liabilities
C)Total asset minus liabilities
D)Composition of debt and equity

Answer 3

Composition of debt and equity

Question 4

In Walter model alphabet 'D' in the formula stands for……..

A)Dividend per share
B)Dividend earning
C)Direct dividend
D)None of these

Question 5

A critical assumption of NOI (Net operating income approach) to valuation is that…

A)Debt and equity levels remain unchanged.
B)Dividends increase at constant rate
C)Overall cost of capital is independent of the degree of leverage
D)Interest expenses and taxes are included in calculation

Question 6

According to …. principle the ideal pattern of capital structure is one that tends to minimize the cost of financing.

A)Control principle
B)Cost principle
C)Risk principle
D)Flexibility principle

Question 7

….principle says that issue of debt and preference shares do not affect the interest of equity share holders.

A)Cost principle
B)Risk principle
C)Control principle
D)Timing principle

Question 8

Who Introduced Net Income approach?

A)David Durand
B)Walter
C)Gordon
D)Modigliani and Miller

Question 9

One of the important assumptions of NI approach is…...

A)Cost of debt > cost of equity
B)Cost of debt < cost of equity
C)Cost of debt = Cost of equity
D)None of the above

Question 10

Traditional approach of capital structure is also known as….

A)Neutral approach
B)Mixed approach
C)Intermediate approach
D)Parallel

Question 11

……… is not a financing method for merger and acquisition.

A)Cash
B)Vendor placing
C)Convertible bond
D)Factoring

Question 12

Convertible bonds are not ……

A)Straight bonds
B)Converted to ordinary shares
C)Two stage financial instrument
D)Hybrid securities

Question 13

A lease agreement grants lessee the right to….

A)Own the asset
B)Use the asset
C)Own and use the asset
D)Sell the asset

Question 14

Operating lease is favoured by the lessee in respect of assets which depreciate in value on account of …..

A)Obsolescence
B)Wear and tear
C)Exhaustion
D)Fire

Question 15

A "sale and lease back" arrangement is suitable for a lessee having…..

A)Liquidity crisis
B)Surplus fund
C)High profit
D)Loss

Question 16

Basic lease period refers to the period during which lease is irrevocable.

A)True
B)False
C)none
D)all

Question 17

The lessee can protect himself against obsolescence by entering into a capital lease agreement with the lessor.

A)True
B)False
C)none
D)all

Question 18

A ---------- lease is a way of providing finance

A)Leveraged
B)Operating
C)Finance
D)Sale and lease back

Question 19

MVA stands for….

A)Maximum value added
B)Minimum value added
C)Market value added
D)Most value added

Question 20

A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate the remaining assets more efficiently is engaging in __________.

A)Strategic acquisition
B)Two tier tender offer
C)A financial acquisition
D)Shark repellent

Question 21

The ways in which mergers and acquisitions occur do not include:

A)Conglomerate takeover
B)Vertical integration
C)Diversification
D)Horizontal integration

Question 22

Which among the following does not consider time value of money?

A)NPV
B)Payback period
C)IRR
D)Discounted payback period

Question 23

How do we calculate economic value added (EVA)?

A)EVA= NOPAT - (WAAC x Capital invested)
B)EVA = NOI- Cost of capital
C)EVA = EPS x WACC
D)EVA= PER x WACC

Question 24

Retained earnings is…….

A)An Indication of a company's liquidity
B)The same as cash in the bank
C)Not important when determining dividends
D)The cumulative earnings of the company after dividends

Question 25

Economic value added indicates….

A)Value added to economy
B)Financial performance based on residual wealth
C)Net profit
D)Expected amount of dividend