Lecturer Commerce Part 08 (Finance and Accounting Part 1)

 

1. Accounting Ratios are important tools used by 

(a) Managers, 

(b) Researchers,

(c) Investors, 

(d) All of the above

2. Net Profit Ratio Signifies:

(a) Operational Profitability, 

(b) Liquidity Position,

(c) Big-term Solvency,

(d) Profit for Lenders.

3. Working Capital Turnover measures the relationship of Working Capital with:

(a)Fixed Assets,

(b)Sales,

(c)Purchases,

(d)Stock.

4. In Ratio Analysis, the term Capital Employed refers to:

(a)Equity Share Capital,

(b)Net worth,

(c)Shareholders' Funds,

(d)None of the above.

5. Dividend Payout Ratio is:

(a)PAT Capital, 

(b)DPS ÷ EPS,

(c) Pref. Dividend ÷ PAT, 

(d) Pref. Dividend ÷ Equity Dividend.

6. DU PONT Analysis deals with:

(a) Analysis of Current Assets, 

(b)Analysis of Profit, 

(c)Capital Budgeting, 

(d) Analysis of Fixed Assets.

7. In Net Profit Ratio, the denominator is:

(a)Net Purchases,

(b)Net Sales, 

(c) Credit Sales, 

(d) Cost of goods sold.

8. Inventory Turnover measures the relationship of inven­tory with:

(a) Average Sales, 

(b)Cost of Goods Sold, 

(c)Total Purchases, 

(d) Total Assets.

9. The term 'EVA' is used for:

(a)Extra Value Analysis, 

(b)Economic Value Added,

(c)Expected Value Analysis,

(d)Engineering Value Analysis.

10. Return on Investment may be improved by:

(a)Increasing Turnover,

(b) Reducing Expenses,

(c)Increasing Capital Utilization,

(d)All of the above.

11. In Current Ratio, Current Assets are compared with:

(a)Current Profit, 

(b)Current Liabilities,

(c)Fixed Assets, 

(d)Equity Share Capital.

12. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the Current Assets?

(a)Rs. 5,00,000, 

(b)Rs. 10,00,000, 

(c)Rs. 15,00,000, 

(d) Rs. 25,00,000

13. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

(a)That the Capital Employed has reduced,

(b)That the Profitability has gone up,

(c)That debtors collection period has increased,

(d)That Sales has decreased.

14. Which of the following does not help to increase Current Ratio?

(a)Issue of Debentures to buy Stock, 

(b)Issue of Debentures to pay Creditors,

(c)Sale of Investment to pay Creditors,

(d)Avail Bank Overdraft to buy Machine.

15. Debt to Total Assets Ratio can be improved by:

(a)Borrowing More,

(b)Issue of Debentures,

(c)Issue of Equity Shares,

(d)Redemption of Debt

16. Ratio of Net Income to Number of Equity Shares known as:

(a)Price Earnings Ratio, 

(b) Net Profit Ratio,

(c)Earnings per Share, 

(d) Dividend per Share.

17. Trend Analysis helps comparing performance of a firm

(a)With other firms,

(b)Over a period of firm,

(c)With other industries,

(d) None of the above.

18. A Current Ratio of Less than One means:

(a)Current Liabilities < Current Assets,

(b)Fixed Assets > Current Assets,

(c)Current Assets < Current Liabilities,

(d) Share Capital > Current Assets.

19. A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of Rs. 2,00,000 and Expenses of Rs. 1,00,000. What is the Net Profit Ratio?

(a)20%,  

(b) 50%, 

(c)10%, 

(d)40%.

20. XYZ Ltd. has earned 8% Return on Total Assests of Rs. 50,00,000 and has a Net Profit Ratio of 5%. Find out the Sales of the firm. 

(a) Rs. 4,00,000, 

(b)Rs. 2,50,000,

(c)Rs. 80,00,000,

(d)Rs. 83,33,333.

21. Suppliers and Creditors of a firm are interested in

(a)Profitability Position,

(b)Liquidity Position,

(c)Market Share Position, 

(d) Debt Position.

22. Which of the following is a measure of Debt Service capacity of a firm?

(a)Current Ratio, 

(b)Acid Test Ratio,

(c) Interest Coverage Ratio,

(d) Debtors Turnover.

23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

(a) Increase in Costs of Goods Sold, 

(b)If Increase in Expense,

(c) Increase in Dividend,

(d)Decrease in Sales.

24. Which of the following statements is correct?

(a) A Higher Receivable Turnover is not desirable, 

(b) Interest Coverage Ratio depends upon Tax Rate,

(c)Increase in Net Profit Ratio means increase in Sales, 

(d) Lower Debt-Equity Ratio means lower Financial Risk.

25. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:

(a) 0.80, 

(b) 0.25, 

(c) 1.00, 

(d) 0.75

26. Which of the following helps analysing return to equity Shareholders?

(a) Return on Assets, 

(b) Earnings Per Share, 

(c) Net Profit Ratio, 

(d)Return on Investment.

27. Return on Assets and Return on Investment Ratios be­long to:

(a) Liquidity Ratios,

(b)Profitability Ratios,

(c)Solvency Ratios,

(d)Turnover.

28. XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average. It means that the firm has:

(a) Higher Liquidity, 

(b)Higher Financial Risk,

(c)Higher Profitability,

(d)Higher Capital Employed.

29. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does Debt-Equity Ratio help to study?

(a)Solvency,

(b)Liquidity,

(c)Profitability,

(d) Turnover,

30. In Inventory Turnover calculation, what is taken in the numerator?

(a) Sales,

(b)Cost of Goods Sold,

(c)Opening Stock,

(d) Closing Stock.

31. Financial Planning deals with: 

(a) Preparation of Financial Statements, 

(b)Planning for a Capital Issue, 

(c) Preparing Budgets, 

(d)All of the above.

32. Financial planning starts with the preparation of:

(a) Master Budget,

(b) Cash Budget,

(c) Balance Sheet, 

(d)None of the above.

33. Which of the following is not a part of Master Budget?

(a)Projected Balance Sheet,

(b) Capital Expenditure Budget,

(c)Operating Budgets, 

(d) Budget Manual.

34. Which of the following is not shown in Cash Budget?

(a)Proposed Issue of Capital, 

(b) Loan Repayment,

(c) Interest on loan,

(d) Depreciation.

35. During year 1, the sales and Cost of goods sold were Rs. 6,00,000 and Rs. 4,30,000 respectively. Next year, the sales are expected to increase by 10%. The Cost of goods sold for next year would be:

(a) Rs. 4,30,000,

(b) Rs. 4,90,000,

(c) Rs. 4,73,000,

(d) Rs. 4,40,000.

36. In 'Percentage of Sales' method of preparation of Pro­jected Financial Statements, the Operating Expenses should be projected on the basis of:

(a) % of Profit before tax, 

(b) % of Cost of goods Sold, 

(c) % of Gross Profit, 

(d) % of Sales.

37. In'% of Sales' method, various items of balance sheet are estimated on the basis of.

(a) % of Share Capital, 

(b) % of Sales in current year, 

(c) % of Fixed Assets,

(d) % of Sales in preceding year.

38. In Projected Balance Sheet, a balancing figure:

(a) May appear on Assets Side,

(b) May appear on Liabilities Side,

(c) Would never appear,

(d) Any of (a) or (&).

39. Procedure for preparation of 'Projected Financial State­ments' should start from:

(a) Projection of Fixed Assets,

(b) Projection of Capital,

(c) Projection of Sales,

(d) Projection of Profit.

40. Which of the following is not considered which preparing cash budget?

(a) Accrual Principle,

(b) Difference in Capital, and Revenue items, 

(c) Conservation Principle, 

(d) All of the above.

41. Which of the following may not be apart of projected Financial Statements?

(a) Projected Income Statement,

(b) Projected Trial Balance,

(c) Projected Cash Flow Statement,

(d) Projected Balance Sheet.

42. Process of Financial Planning ends with:

(a) Preparation of Projected Statements,

(b) Preparation of Actual Statements,

(c) Comparison of Actual with Projected,

(d) Ordering the employees that projected figures m come true.

43. Which of the following is not true for cash Budge?

(a) That shortage or excess of cash would appear in a particular period.

(b) All inflows would arise before outflows for those periods. 

(c) Only revenue nature cash flows are shown.

(d) Proposed issue of share capital in shown as an inflow.

44. Capital Budgeting is a part of: 

(a)Investment Decision,

(b) Working Capital Management,

(c) Marketing Management,

(d) Capital Structure.

45. Capital Budgeting deals with:

(a) Long-term Decisions,

(b) Short-term Decisions,

(c) Both (a) and (b),

(d) Neither (a) nor (b).

46. Which of the following is not used in Capital Budgeting?

(a) Time Value of Money, 

(b) Sensitivity Analysis, 

(c) Net Assets Method,

(d) Cash Flows.

47. Capital Budgeting Decisions are:

(a) Reversible,

(b) Irreversible,

(c) Unimportant,

(d)All of the above.

48. Which of the following is not incorporated in Capital Budgeting?

(a) Tax-Effect,

(b) Time Value of Money,

(c) Required Rate of Return,

(d) Rate of Cash Discount.

49. Which of the following is not a capital budgeting deci­sion?

(a) Expansion Programme,

(b) Merger, 

(c) Replacement of an Asset,

(d) Inventory Level.

50. A sound Capital Budgeting technique is based on:

(a) Cash Flows,

(b)Accounting Profit,

(c) Interest Rate on Borrowings,

(d) Last Dividend Paid.

51. Which of the following is not a relevant cost in Capital Budgeting?

(a) Sunk Cost,

(b) Opportunity Cost,

(c) Allocated Overheads,

(d) Both (a) and (c) above.

52. Capital Budgeting Decisions are based on:

(a) Incremental Profit,

(b) Incremental Cash Flows,

(c) Incremental Assets,

(d) Incremental Capital.

53. Which of the following does not effect cash flows proposal?

(a) Salvage Value,

(b) Depreciation Amount,

(c) Tax Rate Change,

(d) Method of Project Financing.

54. Cash Inflows from a project include:

(a) Tax Shield of Depreciation,

(b) After-tax Operating Profits,

(c) Raising of Funds,

(d) Both (a) and (b).

55. Which of the following is not true with reference capital budgeting?

(a) Capital budgeting is related to asset replacement decisions,

(b) Cost of capital is equal to minimum required return,

(c) Existing investment in a project is not treated as sunk cost,

(d) Timing of cash flows is relevant.

56. Which of the following is not followed in capital budgeting?

(a) Cash flows Principle,

(b) Interest Exclusion Principle,

(c) Accrual Principle,

(d) Post-tax Principle.

57. Depreciation is incorporated in cash flows because it:

(a) Is unavoidable cost,

(b) Is a cash flow,

(c) Reduces Tax liability,

(d) Involves an outflow.

58. Which of the following is not true for capital budgeting?

(a) Sunk costs are ignored, 

(b)Opportunity costs are excluded, 

(c)Incremental cash flows are considered, 

(d) Relevant cash flows are considered.

59. Which of the following is not applied in capital budgeting?

(a) Cash flows be calculated in incremental terms,

(b) All costs and benefits are measured on cash basis,

(c) All accrued costs and revenues be incorporated, 

(d) All benefits are measured on after-tax basis.

60. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:

(a) Cash Flows are easy to calculate, 

(b)Cash Flows are suggested by SEBI, 

(c) Cash is more important than profit, 

(d) None of the above.

61. Which of the following is not included in incremental A flows?

(a) Opportunity Costs, 

(b)Sunk Costs,

(c) Change in Working Capital,

(d) Inflation effect.

62. A proposal is not a Capital Budgeting proposal if it:

(a) is related to Fixed Assets,

(b) brings long-term benefits,

(c) brings short-term benefits only,

(d) has very large investment.

63. In Capital Budgeting, Sunk cost is excluded because it is:

(a) of small amount,

(b) not incremental,

(c) not reversible,

(d) All of the above.

64. Savings in respect of a cost is treated in capital budgeting as:

(a) An Inflow,

(b) An Outflow,

(c) Nil, 

(d) None of the above.

65. In capital budgeting, the term Capital Rationing implies:

(a) That no retained earnings available,

(b) That limited funds are available for investment,

(c) That no external funds can be raised,

(d) That no fresh investment is required in current year

66. Feasibility Set Approach to Capital Rationing can be applied in:

(a) Accept-Reject Situations,

(b) Divisible Projects,

(c) Mutually Exclusive Projects,

(d) None of the above

67. In case of divisible projects, which of the following can be used to attain maximum NPV?

(a) Feasibility Set Approach,

(b) Internal Rate of Return,

(c) Profitability Index Approach,

(d) Any of the above

68. In case of the indivisible projects, which of the following may not give the optimum result?

(a) Internal Rate of Return,

(b) Profitability Index,

(c) Feasibility Set Approach,

(d) All of the above

69. Profitability Index, when applied to Divisible Projects, impliedly assumes that:

(a) Project cannot be taken in parts,

(b) NPV is linearly proportionate to part of the project taken up,

(c) NPV is additive in nature,

(d) Both (b) and (c)

70. If there is no inflation during a period, then the Money Cashflow would be equal to:

(a) Present Value,

(b) Real Cashflow,

(c) Real Cashflow + Present Value , 

(d) Real Cashflow - Present Value

71. The Real Cashflows must be discounted to get the present value at a rate equal to:

(a) Money Discount Rate,

(b) Inflation Rate,

(c) Real Discount Rate,

(d) Risk free rate of interest

72. Real rate of return is equal to:

(a) Nominal Rate × Inflation Rate, 

(b) Nominal Rate ÷ Inflation Rate,

(c) Nominal Rate - Inflation Rate,

(d) Nominal Rate + Inflation Rate

73. Money Cash flows should be adjusted for:

(a) Only Inflation Effect, 

(b) Only Time Value of Money,

(c) None of (a) and (b),

(d) Both of (a) and (b)

74. EAV should be used in case of: 

(a) Divisible Projects,

(b) Repetitive Projects, 

(c) One-off Investments ; 

(d) Indivisible Projects

75. Two mutually exclusive projects with different economic lives can be compared on the basis of

(a) Internal Rate of Return,

(b) Profitability Index,

(c) Net Present Value,

(d) Equivalent Annuity Value

76. If a project has positive NPV, its EAV is

(a) Equal to NPV, 

(b)More than NPV,

(c) Less than NPV,

(d) Any of the above

77. If the Real rate of return is 10% and Inflation s Money Discount Rate is:

(a) 14.4%, 

(b) 2.5%,

(c) 25%,

(d) 14%

78. Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.

(a) Variability,

(b)Probability,

(c) Certainty,

(d) None of the above

79. In Certainty-equivalent approach, adjusted cash flows are discounted at:

(a) Accounting Rate of Return,

(b) Internal Rate of Return,

(c) Hurdle Rate,

(d) Risk-free Rate

80. Risk in Capital budgeting is same as:

(a) Uncertainty of Cash flows,

(b) Probability of Cash flows,

(c) Certainty of Cash flows,

(d) Variability of Cash flows

81. Which of the following is a risk factor in capital budget­ing?

(a) Industry specific risk factors,

(b) Competition risk factors,

(c) Project specific risk factors,

(d) All of the above

82. In Risk-Adjusted Discount Rate method, the normal rate of discount is:

(a) Increased, 

(b) Decreased,

(c) Unchanged,

(d) None of the above

83. In Risk-Adjusted Discount Rate method, which one is adjusted?

(a) Cash flows,

(b) Life of the proposal,

(c) Rate of discount,

(d) Salvage value

84. NPV of a proposal, as calculated by RADR real CE Approach will be:

(a) Same,

(b) Unequal,

(c) Both (a) and (b),

(d) None of (a) and (b)

85. Risk of a Capital budgeting can be incorporated

(a) Adjusting the Cash flows,

(b) Adjusting the Discount Rate,

(c) Adjusting the life, 

(d) All of the above

86. Which element of the basic NPV equation is adjusted by the RADR?

(a) Denominator,

(b) Numerator,

(c) Both,

(d) None

86. In CE Approach, the CE Factors for different years are:

(a) Generally increasing,

(b) Generally decreasing,

(c) Generally same,

(d) None of the above

87. Which of the following is correct for RADR? 

(a) Accept a project if NPV at RADR is negative, 

(b) Accept a project if IRR is more than RADR 

(c) RADR is overall cost of capital plus risk-premium , 

(d) All of the above.

88. In Playback Period approach to risk the target payback period is 

(a)Not adjusted, 

(b)Adjusted upward, 

(c) Adjusted downward , 

(d) (b) or c

89. In Sensitivity Analysis, the emphasis is on assessment of sensitivity of

(a) Net Economic Life, 

(b) Net Present Value, 

(c) Both (a) and (b), 

(d)None of (a) and (b)

90. Most Sensitive variable as given by the Sensitivity Analysis should be:

(a) Ignored, 

(b) Given Least important, 

(c) Given the maximum importance,

(d) None of the above

91. Expected Value of Cashflow, EVCF, is: 

(a) Certain to occur,

(b) Most likely Cashflows,

(c) Arithmetic Average Cashflow,

(d) Geometric Average Cashflow

92. Concept of joint probability is used in case of:

(a) Independent Cashflows,

(b) Uncertain Cashflows,

(c) Dependent Cashflows,

(d) Certain Cashflows

93. Decision-tree approach is used in:

(a) Proposals with longer life,

(b) Sequential decisions,

(c) Independent Cashflows,

(d) Accept-Reject Proposal

94. Cost of Capital refers to: 

(a) Flotation Cost,

(b) Dividend,

(c) Required Rate of Return,

(d) None of the above.

95 Which of the following sources of funds has an Implicit Cost of Capital?

(a) Equity Share Capital,

(b) Preference Share Capital,

(c) Debentures,

(d) Retained earnings.

96. Which of the following has the highest cost of capital?

(a) Equity shares,

(b) Loans,

(c) Bonds,

(d) Preference shares.

97. Cost of Capital for Government securities is also known as:

(a) Risk-free Rate of Interest,

(b) Maximum Rate of Return,

(c) Rate of Interest on Fixed Deposits,

(d) None of the above.

98. Cost of Capital for Bonds and Debentures is calculated on: 

(a) Before Tax basis,

(b) After Tax basis,

(c) Risk-free Rate of Interest basis,

(d) None of the above.

99. Weighted Average Cost of Capital is generally denoted by: 

(a) k_A, 

(b) k_w, 

(c) k₀, 

(d) k_c,

100. Which of the following cost of capital require tax adjustment?

(a) Cost of Equity Shares, 

(b) Cost of Preference Shares,

(c) Cost of Debentures,

(d) Cost of Retained Earnings.

101. Which is the most expensive source of funds?

(a) New Equity Shares,

(b) New Preference Shares,

(c) New Debts,

(d) Retained Earnings.

102. Marginal cost of capital is the cost of:

(a) Additional Sales,

(b) Additional Funds,

(c) Additional Interests,

(d) None of the above.

103 In case the firm is all-equity financed, WACC would be equal to:

(a) Cost of Debt,

(b) Cost of Equity,

(c) Neither (a) nor (b), 

(d) Both (a) and (b).

104. In case of partially debt-financed firm, k₀ is less 

(a) K_{d ,}

(b) K_e, 

(c) Both (a) and (b),

(d) None of the above.

105. In order to calculate Weighted Average Cost of weights may be based on:

(a) Market Values, 

(b) Target Values,

(c) Book Values, 

(d) All of the above.

106. Firm's Cost of Capital is the average cost of: 

(a) All sources, 

(b) All borrowings, 

(c) Share capital, 

(d) Share Bonds & Debentures.

107. An implicit cost of increasing proportion of debt is:

(a) Tax should would not be available on new debt, 

(b) P.E. Ratio would increase, 

(c) Equity shareholders would demand higher return, 

(d) Rate of Return of the company would decrease.

108. Cost of Redeemable Preference Share Capital is:

(a) Rate of Dividend,

(b) After Tax Rate of Dividend, 

(c) Discount Rate that equates PV of inflows and out-flows relating to capital, 

(d) None of the above.

109. Which of the following is true? (a) Retained earnings are cost free, 

(b) External Equity is cheaper than Internal Equity, 

(c) Retained Earnings are cheaper than External Equity, 

(d) Retained Earnings are costlier than External Equity.

110. Cost of capital may be defined as: 

(a)Weighted Average cost of all debts, 

(b) Rate of Return expected by Equity Shareholders, 

(c) Average IRR of the Projects of the firm, 

(d)Minimum Rate of Return that the firm should earn.

111. Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

(a) Average Return on Investment, 

(b)Weighted Average Cost of Capital, 

(c) Net Profit Ratio, 

d) Average Cost of borrowing.

112. Cost Capital for Equity Share Capital does not imply that:

(a)Market Price is equal to Book Value of share,

(b)Shareholders are ready to subscribe to right issue,

(c).Market Price is more than Issue Price,

(d) AC of the three above.

113. In order to calculate the proportion of equity financing used by the company, the following should be used:

(a) Authorised Share Capital,

(b)Equity Share Capital plus Reserves and Surplus,

(c)Equity Share Capital plus Preference Share Capital, 

(d) Equity Share Capital plus Long-term Debt.

114. The term capital structure denotes: 

(a) Total of Liability side of Balance Sheet, 

(b)Equity Funds, Preference Capital and Long term Debt,

(c) Total Shareholders Equity,

d) Types of Capital Issued by a Company.

115. Debt Financing is a cheaper source of finance because of: 

(a) Time Value of Money,

b) Rate of Interest,

(c) Tax-deductibility of Interest,

(d) Dividends not Payable to lenders.

116. In order to find out cost of equity capital under CAPM, which of the following is not required:

(a) Beta Factor, 

(b) Market Rate of Return, 

(c) Market Price of Equity Share,

(d) Risk-free Rate of Interest.

117. Tax-rate is relevant and important for calculation of specific cost of capital of:

(a) Equity Share Capital,

(b) Preference Share Capital,

(c) Debentures,

(d) (a) and (b) above.

118. Advantage of Debt financing is:

(a) Interest is tax-deductible,

(b) It reduces WACC,

(c) Does not dilute owners control,

(d) All of the above.

119. Cost of issuing new shares to the public is known as:

(a) Cost of Equity,

(b) Cost of Capital,

(c) Flotation Cost,

(d) Marginal Cost of Capital.

120. Cost of Equity Share Capital is more than cost of debt because:

(a) Face value of debentures is more than face value of shares,

(b) Equity shares have higher risk than debt,

(c) Equity shares are easily saleable,

(d) All of the three above.

121 Which of the following is not a generally accepted ap­proach for Calculation of Cost of Equity?

(a) CAPM,

(b) Dividend Discount Model,

(c) Rate of Pref. Dividend Plus Risk,

(d) Price-Earnings Ratio.

122. Operating leverage helps in analysis of:

(a) Business Risk,

(b) Financing Risk,

(c) Production Risk,

(d) Credit Risk

123. Which of the following is studied with the help of finan­cial leverage?

(a) Marketing Risk,

(b) Interest Rate Risk,

(c) Foreign Exchange Risk,

(d) Financing risk

124. Combined Leverage is obtained from OL and FL by their:

(a) Addition,

(b) Subtraction,

(c) Multiplication,

(d) Any of these

125. High degree of financial leverage means:

(a) High debt proportion,

(b) Lower debt proportion,

(c) Equal debt and equity,

(d) No debt

126. Operating leverage arises because of:

(a) Fixed Cost of Production,

(b) Fixed Interest Cost,

(c) Variable Cost,

(d) None of the above

127. Financial Leverage arises because of:

(a) Fixed cost of production,

(b) Variable Cost,

(c) Interest Cost,

(d) None of the above

128. Operating Leverage is calculated as:

(a) Contribution ÷ EBIT,

(b) EBIT÷PBT,

(c) EBIT ÷Interest,

(d) EBIT ÷Tax

129. Financial Leverage is calculated as:

(a) EBIT÷ Contribution, 

(b) EBIT÷ PBT,

(c) EBIT÷ Sales, 

(d) EBIT ÷ Variable Cost

130. Which combination is generally good for firms

(a) High OL, High FL 

(b) Low OL, Low FL, 

(c) High OL, Low FL,

(d) None of these

131. Combined leverage can be used to measure the relationship between:

(a) EBIT and EPS,

(b) PAT and EPS,

(c) Sales and EPS,

(d) Sales and EBIT

132. FL is zero if:

(a) EBIT = Interest,

(b) EBIT = Zero,

(c) EBIT = Fixed Cost,

(d) EBIT = Pref. Dividend

133. Business risk can be measured by:

(a) Financial leverage,

(b) Operating leverage,

(c) Combined leverage,

(d) None of the above

134. Financial Leverage measures relationship between

(a) EBIT and PBT,

(b) EBIT and EPS,

(c) Sales and PBT,

(d) Sales and EPS

135. Use of Preference Share Capital in Capital structure

(a) Increases OL,

(b) Increases FL,

(c) Decreases OL,

(d) Decreases FL

136. Relationship between change in sales and change m is measured by:

(a) Financial leverage,

(b) Combined leverage

(c) Operating leverage,

(d) None of the above

137. Operating leverage works when:

(a) Sales Increases, 

(b) Sales Decreases, 

(c) Both (a) and (b), 

(d) None of (a) and (b)

138. Which of the following is correct? 

(a) CL= OL + FL,

(b) CL=OL-FL,

(c) OL= OL × FL,

(d) OL=OL÷FL

139. If the fixed cost of production is zero, which one of the following is correct?

(a) OL is zero, 

(b) FL is zero, 

(c) CL is zero, 

(d) None of the above

140. If a firm has no debt, which one is correct?

(a) OL is one, 

(b) FL is one, 

(c) OL is zero, 

(d)FL is zero

141. If a company issues new share capital to redeem debentures, then:

(a) OL will increase,

(b) FL will increase,

(c) OL will decrease,

(d) FL will decrease

142. Higher OL is related to the use of higher:

(a) Debt,

(b) Equity,

(c) Fixed Cost,

(d) Variable Cost

143. Higher FL is related the use of:

(a) Higher Equity,

(b) Higher Debt,

(c) Lower Debt,

(d) None of the above