Capital Structure Management In Practice

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

Raw material and direct labor costs are examples of

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fixed costs

overhead costs

variable costs

capital costs

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Question 2

Free

Multiple Choice

When fixed operating costs are incurred by the firm, a change in ____ is magnified into a relatively larger change in earnings before interest and taxes.

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overhead expenses

interest charges

labor costs

sales revenue

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Question 3

Free

Multiple Choice

When fixed capital costs are incurred by the firm, a change in ____ is magnified into a larger change in earnings per share.

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earnings before interest and taxes

overhead expenses

interest charges

preferred dividends

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Question 4

Free

Multiple Choice

The percentage change in a firm's EBIT that results in a 1% change in sales or output is known as the

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degree of combined leverage

degree of financial leverage

degree of operating leverage

degree of business risk

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Question 5

Free

Multiple Choice

The total variability of the firm's EPS associated with a change in sales is an indication of combined leverage and is best measured by

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DOL

DFL

DOL + DFL

DOL * DFL

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Question 6

Multiple Choice

In the analysis of financial leverage, all of the following are referred to as fixed charges except:

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bond interest

common stock dividends

bank interest

preferred stock dividends

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Question 7

Multiple Choice

The degree of combined leverage is defined as the percentage change in earnings per share resulting from a given percentage change in

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operating costs

interest charges

common stock dividends

sales (or output)

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Question 8

Multiple Choice

The degree of combined leverage is equal to the degree of operating leverage ____ the degree of financial leverage.

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added to

divided by

multiplied by

subtracted from

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Question 9

Multiple Choice

Rent, insurance, and the salaries of top management are examples of:

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fixed costs

capital costs

variable costs

fluctuating costs

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Question 10

Multiple Choice

A firm that employs relatively large amounts of labor- saving equipment in its operations will have a relatively ____ degree of operating leverage.

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low

constant

insignificant

high

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Question 11

Multiple Choice

A firm that employs a relatively large proportion of debt and preferred stock in its capital structure will have a relatively ____ degree of financial leverage.

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low

high

insignificant

constant

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Question 12

Multiple Choice

The degree of combined leverage is equal to the multiplied by the .

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degree of operating leverage, variable cost ratio

degree of financial leverage, variable cost ratio

degree of operating leverage, degree of financial leverage

degree of operating leverage, fixed cost ratio

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Question 13

Multiple Choice

A firm is considering the purchase of assets that will increase its fixed operating costs. The firm should decrease the proportion of ____ it employs in its capital structure if it wants to maintain its existing degree of combined leverage.

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debt

warrants

common stock

common stock and warrants

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Question 14

Multiple Choice

To balance the operating and financial risks that are so variable for a multinational company, Nestle allows its foreign operating subsidiaries operational flexibility and follows a financing strategy.

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decentralized, centralized

centralized, centralized

centralized, decentralized

decentralized, decentralized

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Question 15

Multiple Choice

The degree of financial leverage is defined as the percentage change in

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EBIT resulting from a given percentage change in sales

EPS resulting from a given percentage changes in sales

EBIT resulting from a given percentage change in EPS

EPS resulting from a given percentage change in EBIT

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Question 16

Multiple Choice

An analytical technique called ____ can be used to help determine when debt financing is advantageous and when equity financing is advantageous.

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DFL-EPS analysis

EBIT-EPS analysis

DCL-EPS analysis

DOL-EBIT analysis

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Question 17

Multiple Choice

Cash insolvency analysis evaluates the adequacy of a firm's cash position in a

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bankruptcy proceeding

non-normal environment

highly competitive environment

recessionary environment

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Question 18

Multiple Choice

Financial leverage causes a firm's to change at a rate greater than the change in .

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EBIT; EPS

EPS; EBIT

EBIT; sales

sales; EBIT

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Question 19

Multiple Choice

In EBIT-EPS analysis, the indifference point is found at the point where ____ for the two alternative financing plans are equal.

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EBIT

EPS

stock prices

DOL

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Question 20

Multiple Choice

A firm which has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales.

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3.2%

5.4%

20.0%

2.0%

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Capital Structure Management In Practice

Raw material and direct labor costs are examples of

When fixed operating costs are incurred by the firm, a change in ____ is magnified into a relatively larger change in earnings before interest and taxes.

When fixed capital costs are incurred by the firm, a change in ____ is magnified into a larger change in earnings per share.

The percentage change in a firm's EBIT that results in a 1% change in sales or output is known as the

The total variability of the firm's EPS associated with a change in sales is an indication of combined leverage and is best measured by

In the analysis of financial leverage, all of the following are referred to as fixed charges except:

The degree of combined leverage is defined as the percentage change in earnings per share resulting from a given percentage change in

The degree of combined leverage is equal to the degree of operating leverage ____ the degree of financial leverage.

Rent, insurance, and the salaries of top management are examples of:

A firm that employs relatively large amounts of labor- saving equipment in its operations will have a relatively ____ degree of operating leverage.

A firm that employs a relatively large proportion of debt and preferred stock in its capital structure will have a relatively ____ degree of financial leverage.

The degree of combined leverage is equal to the ____ multiplied by the ____ .

A firm is considering the purchase of assets that will increase its fixed operating costs. The firm should decrease the proportion of ____ it employs in its capital structure if it wants to maintain its existing degree of combined leverage.

To balance the operating and financial risks that are so variable for a multinational company, Nestle allows its foreign operating subsidiaries ____ operational flexibility and follows a ____ financing strategy.

The degree of financial leverage is defined as the percentage change in

An analytical technique called ____ can be used to help determine when debt financing is advantageous and when equity financing is advantageous.

Cash insolvency analysis evaluates the adequacy of a firm's cash position in a

Financial leverage causes a firm's ____ to change at a rate greater than the change in ____ .

In EBIT-EPS analysis, the indifference point is found at the point where ____ for the two alternative financing plans are equal.

A firm which has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales.

The degree of combined leverage is equal to the multiplied by the .

To balance the operating and financial risks that are so variable for a multinational company, Nestle allows its foreign operating subsidiaries operational flexibility and follows a financing strategy.

Financial leverage causes a firm's to change at a rate greater than the change in .