Financial Management MCQ
This Leverage MCQ will help you to score more marks in your exam.
Multiple Choice Questions and Answers
1. Which of the following is studied with the help of operating leverage?
- Analysis of Business Risk
- Analysis of Financial Risk
- Analysis of Production Risk
- Analysis of Credit Risk
Answer :- Analysis of Business Risk
2. Which formula is used to measure the degree of operating leverage?
- EBT/EBIT
- Contribution/EBIT
- EBIT/EBT
- EBIT/Contribution
Answer :- Contribution/EBIT
3. High operating leverage indicates a company has:
- High fixed cost
- Low variable cost
- Both a & b
- None of the above
Answer :- Both a & b
4. Financial risk is analysed with the help of:
- Operating leverage
- Financial leverage
- Combined leverage
Answer :- Financial leverage
5. Which formula is used to measure the degree of financial leverage?
- EBT/EBIT
- Contribution/EBIT
- EBIT/EBT
- EBIT/Contribution
Answer :- EBIT/EBT
6. Financial leverage is also known as:
- Composite leverage
- Breakeven point
- Trading on equity
- Capital structure leverage
Answer :- Trading on equity
7. Financial Leverage is intended to:
- Increase return on capital employed
- Increase net equity return
- Decrease volatility in return
- Increase return on capital employed and net equity
Answer :- Increase return on capital employed and net equity
8. The extent to which an organization uses fixed cost on its cost structure is called:
- Overall leverage
- Financial leverage
- Fixed Leverage
- Operating leverage
Answer :- Operating leverage
9. Use of fixed interest securities in the capital structure is called:
- Operating leverage
- Financial leverage
- Overall leverage
- None of the above
Answer :- Financial leverage
10. Margin of safety is in the following way related to degree of operating leverage:
- Reciprocal
- Equal
- Square
- Bank overdraft
Answer :- Reciprocal
11. Statements:
The greater a firm degree of operating leverage, the more its EBIT will vary with respect to fluctuations in sales.
The greater a firm degree of operating leverage, the less its EBIT will vary with fluctuations in sales.
Options:
- Both correct
- Both incorrect
- 1 correct, 2 incorrect
- 1 incorrect, 2 correct
Answer :- Both incorrect
12. The use of long-term fixed interest bearing debt and preference share capital along with equity share capital is called:
- Operating leverage
- Financial leverage
- Overall leverage
- None of the above
Answer :- Financial leverage
13. High financial leverage indicates:
- Amount of debt is high as compared to stock
- Risky investments
- Fixed assets are purchased with debts
- All of the above
Answer :- All of the above
14. Financial leverage will be one when:
- Debt is more than equity
- Debt is less than equity
- Debt is NIL
- Preference dividend is nil
Answer :- Debt is NIL
15. EPS will be zero at
- Financial Breakeven point
- Operating breakeven point
- Both a & b above
- None of the above
Answer :- Financial Breakeven point
16. Degree of operating leverage of 1.5 means:
- If sales increase by 1.5%, the EBIT will increase by 1%
- If EBIT increase by 1%, the EPS will increase by 1 %
- If sales rise by 1%, EBIT will rise by 1.5%
- If sales rise by 1%, EBIT will remain unaffected
Answer :- If sales rise by 1%, EBIT will rise by 1.5%
17. If fixed cost becomes zero, then which one of the following statement is correct?
- OL will be 0
- OL will be 1
- FL will be 0
- FL will be 1
Answer :- OL will be 1
18. Composite leverage (CL) will be calculated as:
- CL = OL + FL
- CL = OL x FL
- CL = OL/FL
- None of the above
Answer :- CL = OL x FL
19. Which combination of leverage is generally good for the firms?
- High OL, High FL
- Low OL, Low FL
- High OL, Low FL
- None of these
Answer :- High OL, Low FL
20. Operating leverage arises because of:
- Fixed Production cost
- Fixed Interest Cost
- Variable Cost
Answer :- Fixed Production cost
21. Financial Leverage arises because of:
- Fixed production cost
- Variable Cost
- Fixed Interest Cost
Answer :- Fixed Interest Cost
Very good mcq’s it helps for the lesson leverage’s snap shot thak uh🤗