Capital Structure Management In Practice

This question bank verified by Studydeets
All Questions
Filter by:
Question 1
Free
Multiple Choice

Raw material and direct labor costs are examples of

Choose correct answer/s
A

fixed costs

B

overhead costs

C

variable costs

D

capital costs

Check answer
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.

Choose correct answer/s
A

overhead expenses

B

interest charges

C

labor costs

D

sales revenue

Check answer
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.

Choose correct answer/s
A

earnings before interest and taxes

B

overhead expenses

C

interest charges

D

preferred dividends

Check answer
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

Choose correct answer/s
A

degree of combined leverage

B

degree of financial leverage

C

degree of operating leverage

D

degree of business risk

Check answer
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

Choose correct answer/s
A

DOL

B

DFL

C

DOL + DFL

D

DOL * DFL

Check answer
Question 6
Multiple Choice

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

Choose correct answer/s
A
bond interest
B
common stock dividends
C
bank interest
D
preferred stock dividends
To unlock the question
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

Choose correct answer/s
A
operating costs
B
interest charges
C
common stock dividends
D
sales (or output)
To unlock the question
Question 8
Multiple Choice

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

Choose correct answer/s
A
added to
B
divided by
C
multiplied by
D
subtracted from
To unlock the question
Question 9
Multiple Choice

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

Choose correct answer/s
A
fixed costs
B
capital costs
C
variable costs
D
fluctuating costs
To unlock the question
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.

Choose correct answer/s
A
low
B
constant
C
insignificant
D
high
To unlock the question
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.

Choose correct answer/s
A
low
B
high
C
insignificant
D
constant
To unlock the question
Question 12
Multiple Choice

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

Choose correct answer/s
A
degree of operating leverage, variable cost ratio
B
degree of financial leverage, variable cost ratio
C
degree of operating leverage, degree of financial leverage
D
degree of operating leverage, fixed cost ratio
To unlock the question
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.

Choose correct answer/s
A
debt
B
warrants
C
common stock
D
common stock and warrants
To unlock the question
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.

Choose correct answer/s
A
decentralized, centralized
B
centralized, centralized
C
centralized, decentralized
D
decentralized, decentralized
To unlock the question
Question 15
Multiple Choice

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

Choose correct answer/s
A
EBIT resulting from a given percentage change in sales
B
EPS resulting from a given percentage changes in sales
C
EBIT resulting from a given percentage change in EPS
D
EPS resulting from a given percentage change in EBIT
To unlock the question
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.

Choose correct answer/s
A
DFL-EPS analysis
B
EBIT-EPS analysis
C
DCL-EPS analysis
D
DOL-EBIT analysis
To unlock the question
Question 17
Multiple Choice

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

Choose correct answer/s
A
bankruptcy proceeding
B
non-normal environment
C
highly competitive environment
D
recessionary environment
To unlock the question
Question 18
Multiple Choice

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

Choose correct answer/s
A
EBIT; EPS
B
EPS; EBIT
C
EBIT; sales
D
sales; EBIT
To unlock the question
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.

Choose correct answer/s
A
EBIT
B
EPS
C
stock prices
D
DOL
To unlock the question
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.

Choose correct answer/s
A
3.2%
B
5.4%
C
20.0%
D
2.0%
To unlock the question