AFM 2

State whether each of the following statements is True or False .

i) The financing decision affects the total operating profits of the firm.

• True

• False

(ii) The equity shareholders get the residual profit of the firm.

• True

• False

(iii) There is no difference of opinion on the relationship between capital structure and value of the firm.

• True

• False

(iv) The ultimate conclusions of NI approach and the NOI approach are same.

• True

• False

(v) In NI approach, the ke is assumed to be same and constant.

• True

• False

(vi) In NI approach, the ko falls as the degree of leverage is increased.

• True

• False

vii) In NOI approach, kd and ko are taken as constant.

• True

• False

(viii) The NOI approach says that there is no optimal capital structure.

• True

• False

(ix) The traditional approach says that a firm may attain an optimal capital structure.

• True

• False

(x) At optimal capital structure, the ko of the firm is highest.

• True

• False