In financial management, the 'Modigliani-Miller (MM) Hypothesis without taxes' states that the value of a firm is: MCQ with Answer and Explanation

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In financial management, the 'Modigliani-Miller (MM) Hypothesis without taxes' states that the value of a firm is:

A. Directly proportional to its debt level

B. Maximized at a debt-equity ratio of 1:1

C. Inversely proportional to its debt level

D. Independent of its capital structure

Answer: Option D

Solution (By JKSSB Mock Tests)

The MM Hypothesis without taxes asserts that in a perfect market, the value of a firm is determined by its real assets and earning capacity, making it completely independent of how those assets are financed (capital structure).

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Question #1

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According to the Companies Act, which financial statement details cash inflows and outflows?

A. Statement of Changes in Equity

B. Balance Sheet

C. Statement of Profit and Loss

D. Cash Flow Statement

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Correct Answer: Option D

Explanation:
The Cash Flow Statement provides historical information about changes in cash and cash equivalents, categorized into operating, investing, and financing activities.

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Question #2

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Input Tax Credit under GST is available for:

A. All goods and services

B. Goods and services used for business purposes

C. Personal consumption goods

D. Exempted supplies only

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Correct Answer: Option B

Explanation:
Input tax credit can be availed only on inputs used for business purposes, subject to conditions under GST law.

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Question #3

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S1: In a cash flow statement under Ind AS 7, dividends paid can be classified as either operating or financing activities. S2: Interest paid can be classified as either operating or financing activities. Which statement(s) is/are correct?

A. Neither S1 nor S2

B. S2 only

C. S1 only

D. Both S1 and S2

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Correct Answer: Option D

Explanation:
Ind AS 7 allows flexibility. Dividends paid can be classified as financing (cash outflow for financing) or operating (to assist in determining cash from operations). Interest paid can be operating or financing. Both are correct.

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