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CS Executive Practice Test: Capital Structure Decisions
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CS Executive Practice Test: Capital Structure Decisions
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25 Questions

1. Take the data of the above question and calculate the overall cost of capital.
2. The optimal capital structure consists of –
3. External sources of finance do not include:
4. One can get a reasonably accurate broad idea about the risk profile of the firm from its –
5. Market values are often used in computing the weighted average cost of capital because
6. EBIT of R Ltd. is ₹ 5,00,000. The company has 10%, ₹ 20,00,000 debentures. The equity capitalization rate i.e. Ke is 16%. Calculate the market value of the firm as per the Net Income (NI) Approach. Ignore taxation.
7. Which of the following capital structure consist of zero debt components in the structure mix?
8. The manner in which an organization’s assets are financed is referred to as its –
9. A firm’s optimal capital structure:
10. Ganesha Ltd. is setting up a project with a capital outlay of ₹ 60,00,000. It has two alternatives in financing the project cost.
Alternative (a): 100% equity finance
Alternative (b): Debt-equity ratio 2:1
The rate of interest payable on the debts is 18% p.a. Corporate tax rate is 40%. Calculate the indifference point between the two alternative methods of financing.
11. If the debt component in the capital structure is predominant –
12. The decisions regarding the forms of financing, their requirements, and their relative proportions in total capitalization are known as –
13. Assertion (A):
The capital structure acts as a tax management tool also.
Reason (R):
A relatively lesser component of equity capital is vulnerable to hostile takeovers.
Select the correct answer from the options given below
14. Which of the following changes in capital structure would you recommend for growth at a faster rate?
15. While designing a capital structure a finance manager should choose a pattern of capital which –
16. M & M Proposition I, without taxes, states that:
17. Which one of the following statements concerning financial leverage is correct?
18. EBIT of NS Ltd. is ₹ 4,50,000.
Debt in capital structure = ₹ 6,00,000
Cost of debt (Kd) = 10%
Cost of equity (Ke) = 12.5%
Ignore taxation.
The total market value of NS Ltd. =?
19. A student studying Financial Management subject is not able to understand when total market value will be the same for Company X and Company Y if both companies have the same total assets.
Company X calculates total value under Net Income (NI) approach and Company Y calculates total value under Net Operating Income (NOI) approach. Help him by selecting the correct option.
20. An EBIT-EPS indifference analysis chart is used for –
21. The financial structure involves the creation of ___
(1) Long term assets
(2) Short term assets
Select the correct answer from the options given below.
22. Which of the following step would you recommend to avoid the negative consequences of overcapitalization?
23. In horizontal capital structure –
24. A critical assumption of the net operating income (NOI) approach to valuation is that:
25. Which of the following shows the significance of capital structure?

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