Exam Questions Review ( Ch4 , 5 & 6 )

Exam Questions Review ( Ch4 , 5 & 6 )

FINA 110 – Section 2

1. Multiple Choice Questions (Choose the correct answer)

1)Which of the following is not an owned capital:

1. Reserves
2. Surplus
3. Debenture
4. Undivided profit

2)Financial structure is equal:-

1. Long tern capital
2. Short term capital
3. Capital structure
4. Capital structure and short term liabilities

3)The ratio that shows the relationship between equity share capital and debt capital is called:-

1. Financial leverage
2. Operating leverage
3. Gearing
4. Cost of capital

4)Which of the following is correct for over capitalization:-

1. The company is not able to pay dividends
2. Using the capital effectively
3. Shareholders get high dividends
4. The share price will increase

5)If the real value of business is more than the book value of business, then the capital test is :-

1. Over capitalization
2. Under capitalization
3. Fair capitalization
4. None of them

6)Which of the following is a type of dept capital:-

1. Preference shares
2. Retained earning
3. Equity shares
4. Reserves

7)The step of deciding the amount of capital required for newly business is called:-

1. Capital structure
2. Capitalization
3. Excess capital
4. Under capitalization

8)Which of the following is a type of fixed cost:-

1. Preference share dividends
2. Debt capital
3. Interest on debentures
4. All of them

9) Capital structure is the combination of both short term and long term finance:-

1. True
2. False

10)The company will have high risk when:-

1. Variable cost > fixed cost
2. Fixed cost > variable cost
3. Debt capital < equity capital
4. Low cost of capital

11)If the capital of X company is R.O 1,000,000 and it has to pay R.O 50,000 as interest on it, then the cost of capital is :-

1. 5 %
2. 20%
3. 9%
4. 20%

12)The debt capital is supplied by:-

1. Debtors
2. Owners
3. Creditors
4. Equity shareholders

13)If the equity share capital is less than fixed cost capital ( debt capital), then the company has:-

1. Low gearing
2. High gearing
3. Low operating leverage
4. High operating leverage

14)Trading on equity means:-

1. Lesser ownership capital
2. Greater debt capital
3. Lesser debt capital
4. Both A & B

15)Capitalization according to the estimation cost of investment in its various assets is called:-

1. Cost Theory of Capitalization
2. Earning Theory of Capitalization
3. Capitalization
4. Under Capitalization

16)Over capitalization is more harmful to business than under capitalization:-

1. True
2. False

Question two; Fill in the blanks (one mark)

Capital structure = ……………………………+ ……………………………..+

……………………………………+ ……………………………….. + Reserve and

Surplus + Retained earning

Part II: Open question

Question One: Answer both parts

A- Draw the working capital cycle?

B- Define the cost theory?

Question Two: The balance sheet in 2009 for AZD Company is given. Find out the following:-

1. Capital structure
2. Financial structure
3. Gearing
4. Trading on Equity

Question Three :

Test the capitalization of this company for the following given information:-

The real value of shares is R.O 100.

Number of equity shares issued by the company is R.O 5,000.

Total asset of the company is R.O 800,000

Current liabilities of the company is R.O 400,000