MCQ Bank
Which of the following statements is incorrect regarding traditional theory of capital structure?
- A) Firm value is dependent on capital structure
- B) It is a theory of relevance
- C) It is a theory of irrelevance
- D) There exits an optimal capital structure where value is maximized and cost is minimized
Which of the following represents a change in capital structure?
- A) An increase in % of preferred stock in the capital structure
- B) An increase in % of common shares in the capital structure
- C) An decrease in % of debt in the capital structure
- D) All of the given options
Which of the following theory states that value of a firm is in-dependant of its capital structure.
- A) Net operating income theory
- B) All of the given options
- C) Bird in hand theory
- D) Traditional theory
Prime objective of a commercial business is:
- A) Economic uplift
- B) Profit maximization
- C) Fulfillment of corporate social responsibilities
- D) All of the given options
Which of the followings is not an assumption of “Net Operating Income Theory”?
- A) Business risk remains the same at every level of debt and equity mix
- B) Cost of debt is equal to cost of equity
- C) Market capitalizes the value of firm as a whole
- D) No corporate taxes
Which of the following is not the prime objective of a commercial business?
- A) Fulfillment of corporate social responsibilities
- B) Economic uplift
- C) Employment generation
- D) All of the given options
Size of a firm as per balance sheet is represented through:
- A) All of the given options
- B) Market value
- C) Book value
- D) Economic value
Optimal capital structure is a mix of debt and equity where _______ is maximized and overall cost of capital is _______.
- A) Cost of debt, maximized
- B) Cost of equity, maximized
- C) Value of a firm, maximized
- D) Value of a firm, minimized
Which of the following is the general assumption of capital structure theories?
- A) No taxes
- B) All of the given options
- C) There is no change in risk perception of the investors with the change in capital structure
- D) Cost of debt < cost of equity
All are the general assumptions of M&M theory EXCEPT:
- A) Investors behave rationally
- B) Firms can be identical
- C) All earnings are retained
- D) External factors do not affect