Sample Multiple Choice Questions (MCQ's) for CA Intermediate - Paper 8 - FINANCIAL MANAGEMENT & ECONOMICS FOR FINANCE - SECTION A - FINANCIAL MANAGEMENT Chapter 5: FINANCING DECISIONS-CAPITAL STRUCTURE - For Practice relevant for May/November 23 Examinations


Q1. The assumptions of MM hypothesis of capital structure do not include the following: 

  1. Capital markets are imperfect
  2. Investors have homogeneous expectations
  3. All firms can be classified into homogeneous risk classes
  4. The dividend-payout ratio is cent percent, and there is no corporate tax

Answer: 1

Q2. Which of the following is irrelevant for optimal capital structure?

  1. Flexibility
  2. Solvency
  3. Liquidity
  4. Control

Answer: 2

Q3. Financial Structure refers to: 

  1. All financial resources
  2. Short-term funds
  3. Long-term funds
  4. None of these

Answer: 1

Q4. An EBIT-EPS indifference analysis chart is used for: 

  1. Evaluating the effects of business risk on EPS
  2. Examining EPS results for alternative financial plans at varying EBIT levels
  3. Determining the impact of a change in sales on EBIT
  4. Showing the changes in EPS quality over time

Answer: 2

Q5. The term "capital structure" means: 

  1. Long-term debt, preferred stock, and equity shares
  2. Current assets and current liabilities
  3. Net working capital
  4. Shareholder’s equity

Answer: 1

Q6. The cost of monitoring management is considered to be a (an):

  1. Bankruptcy cost
  2. Transaction cost
  3. Agency cost
  4. Institutional cost 

Answer: 3

Q7. The traditional approach towards the valuation of a firm assumes:

  1. That the overall capitalization rate changes in financial leverage.
  2. That there is an optimum capital structure.
  3. That the total risk is not changed with the changes in the capital structure. 
  4. That the markets are perfect.

Answer: 2

Q8. Market values are often used in computing the weighted average cost of capital because: 

  1. This is the simplest way to do the calculation.
  2. This is consistent with the goal of maximizing shareholder value.
  3. This is required by SEBI.
  4. This is a very common mistake.

Answer: 2


CA Intermediate FMECO - SECTION A - MCQ for Chapter 6 -   

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