#1
Which of the following refers to the mix of debt and equity used by a company to finance its operations?
Profit margin
Capital structure
Operating leverage
Inventory turnover
#2
What is the primary goal of capital structure management for a corporation?
Maximizing shareholder wealth
Minimizing operating costs
Maximizing revenue
Minimizing taxes
#3
Which of the following is NOT a source of financing for a company?
Equity financing
Debt financing
Venture capital financing
Sales revenue
#4
What is the term used to describe the portion of assets financed by debt?
Equity ratio
Leverage ratio
Debt ratio
Asset ratio
#5
What is the weighted average cost of capital (WACC)?
The average interest rate paid on the company's debt
The average rate of return expected by shareholders
The average cost of financing for the company, taking into account debt and equity
The average tax rate paid by the company
#6
What is financial distress?
A situation where a company's earnings exceed its expenses
A situation where a company is unable to meet its financial obligations
A situation where a company has a high level of profitability
A situation where a company has low levels of debt
#7
What does the debt-to-equity ratio measure?
The company's ability to pay off its short-term debt
The company's profitability
The proportion of debt in the company's capital structure relative to equity
The amount of dividends paid to shareholders
#8
What is financial leverage?
The ratio of fixed costs to variable costs
The use of debt to increase the return on equity
The measure of how much a company relies on its assets to generate profit
The ratio of current assets to current liabilities
#9
What is the weighted average cost of capital (WACC) used for in finance?
To calculate the company's net income
To assess the company's liquidity
To evaluate the overall cost of capital for a company
To determine the company's market share
#10
What is the role of a financial manager in determining the capital structure of a company?
To set the company's pricing strategy
To manage the company's day-to-day operations
To minimize the company's cost of debt
To make decisions about how to finance the company's investments
#11
What effect does issuing equity have on a company's financial leverage?
It decreases financial leverage
It increases financial leverage
It has no effect on financial leverage
It decreases the company's cost of capital
#12
What is the formula for calculating the debt-to-equity ratio?
Total debt / Total assets
Total debt / Total equity
Total equity / Total debt
Total assets / Total equity
#13
What is the trade-off theory of capital structure?
A theory that suggests firms must balance the costs and benefits of debt financing
A theory that suggests firms should always use equity financing to avoid financial distress
A theory that suggests firms should avoid both debt and equity financing
A theory that suggests firms should prioritize short-term debt over long-term debt
#14
Which of the following is NOT a factor that affects a company's optimal capital structure?
Interest rates
Tax rates
Industry norms
Economic conditions
#15
What is the Modigliani-Miller theorem?
A theory that describes how firms make investment decisions
A theory that states a company's value is unaffected by its capital structure
A theory that explains how firms determine their optimal dividend policy
A theory that outlines the relationship between risk and return
#16
What is the concept of pecking order theory in capital structure?
A theory that suggests companies prefer to issue debt over equity
A theory that suggests companies prefer to issue equity over debt
A theory that suggests companies prefer to retain earnings rather than pay dividends
A theory that suggests companies prefer to maintain a stable dividend payout ratio
#17
How does financial distress impact a company's capital structure decisions?
It encourages the company to take on more debt
It encourages the company to issue more equity
It leads to a decrease in the company's leverage
It restricts the company's ability to raise external financing
#18
How does bankruptcy cost impact a firm's capital structure decisions?
It encourages the firm to take on more debt
It encourages the firm to issue more equity
It leads to a decrease in the firm's leverage
It limits the firm's ability to raise external financing
#19
What is the impact of high financial leverage on a company's risk?
It decreases the company's financial risk
It increases the company's financial risk
It has no effect on the company's financial risk
It decreases the company's operating risk
#20
What is the formula for calculating the weighted average cost of capital (WACC)?
WACC = (Cost of Equity + Cost of Debt) / 2
WACC = (Cost of Equity * Equity Weight) + (Cost of Debt * Debt Weight)
WACC = Cost of Equity + Cost of Debt
WACC = Cost of Equity - Cost of Debt