Other Factors Affecting Capital Structure

Q.

___ is an important determinant of a company's ability to trading on equity.

1. ICR

2. ROI

3. DSCR

4. All of the above

Q.

DSCR is a measure of the cash flow available to pay current debt obligations. State true and false.

1. True

2. False

Q.

Debt Service Coverage Ratio is EBIT-Tax+depreciation divided by Interest + Principal + Dividends. State true or false.

1. True

2. False

Q.

Higher business risk means higher fixed operating costs, eg: rent, salaries, etc. State true or false.

1. True

2. False

Q.

___ aims to reduce the cost of funds procured, keeping the risk under control and achieving effective deployment of such funds.

1. Financial Planning

2. Capital Structure

3. Financial Management

4. None of the above

Q.

Financial leverage is the amount of total debt in the capital. It is calculated as:

1. Debt equity ratio = Debt/Equity

2. Proportion of debt in the total capital = Debt/Debt+Equity

3. Both A and B

4. None of these

Q.

Financial leverage is called favourable if:

1. ROI is higher than the cost of debt

2. Debt is easily available

3. Return on Investment is lower than the cost of debt

4. If the degree of existing financial leverage is low

Q.

Other things remaining the same, an increase in the tax rate on corporate profits will:

1. make the debt relatively cheaper

2. None of these

3. make the debt relatively the dearer

4. have no impact on the cost of debt

Q. Risk arising due to high fixed operating cost is known as risk.

1. Business
2. Financial
3. Administrative
4. Management

Q. Risk on the company due to non-payment of fixed financial charges is known as risk.

1. Business
2. Financial
3. Administrative
4. Management