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JAIIB AFM Unit 24 — Capital Structure and Cost of Capital: Free MCQs with Explanations

By Swarnakshi Jha (ex-banker) · Updated 20 September 2026 · Paper 3 of the November 2026 cycle (28 November 2026)

This page is a free slice of our JAIIB AFM question bank for Unit 24 — Capital Structure and Cost of Capital (Module C — Financial Management). The Mock Centre holds 30 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five of those questions to try, and the traps that cost marks.

AFM · Module C30 MCQs in the Mock Centre5 free belowPaper on 28 November 2026

Key facts examiners test from this unit

  1. Capital structure = the debt-equity MIX financing the firm; high leverage = high debt share; trading on equity pays when ROI > cost of debt.
  2. Theories: NI approach (Durand) — more debt lowers WACC, raises value; NOI approach — structure is irrelevant (value set by operating income); Traditional — WACC falls, bottoms at the OPTIMAL structure, then rises.
  3. After-tax Kd = Kd × (1 − t) — interest is tax-deductible (10% coupon @30% tax → 7%).

5 free practice questions — tap an option

Five basic questions from this unit. Answers lock on the first tap, exactly as in the exam, and a short explanation opens underneath. The Mock Centre adds the moderate and tough questions, why every other option is wrong, the concept capsule and the exam tip — with your score and revision dates tracked.

Question 1 of 5
'Capital structure' represents:
Why (b): Capital structure = the composition of LONG-TERM funds — the debt-equity mix.
Question 2 of 5
'High leverage' means:
Why (b): High leverage = a high PROPORTION OF DEBT — magnifying both shareholder returns and financial risk.
Question 3 of 5
The capital structure decision is influenced by:
Why (d): ALL the listed factors shape the mix — business risk, cash-flow stability, cost of each source, control dilution, flexibility, market conditions.
Question 4 of 5
Interest is tax-deductible while dividends are not. With a 30% tax rate and 10% coupon debt, the after-tax cost of debt is:
Why (c): Kd = 10% × (1 − 0.30) = 7% — the government effectively bears 3 points via the deduction.
Question 5 of 5
Which item is NOT part of a firm's capital structure?
Why (c): Capital structure covers LONG-TERM sources — debt, share capital, retained earnings. Trade creditors are short-term operating credit, part of working capital instead.
0 of 5 answered.

Traps in this unit

Confusable AConfusable BThe difference
NI approachNOI approachStructure matters (more debt = more value) vs irrelevant
Traditional approachNOI approachU-shaped WACC with an optimum vs flat
Practise all 30 questions on Unit 24. The free demo opens a slice of every subject with the same explanations; the AFM Online-only pass unlocks all 1,681 AFM questions, the full and module mocks, Smart Revision and the Readiness Score for one year (₹1,299). Not sure where you stand? Take the free 10-question test first.
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Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. Regulatory figures verified as of September 2026; verify from official sources before relying on them in practice.