Financing and Capital Structure Quiz

Capital structure represents the blend of debt and equity financing utilized by a company.

The primary aim of capital structure management is to enhance shareholder wealth.

Sales revenue is not a direct source of financing for a company's operations.

The debt ratio signifies the proportion of assets funded through debt.

WACC represents the mean cost of financing, incorporating both debt and equity.

Financial distress arises when a company cannot fulfill its financial commitments.

The debt-to-equity ratio quantifies the extent of debt compared to equity in a company's funding.

Financial leverage denotes employing debt to amplify shareholder returns.

WACC gauges the combined cost of financing for a company's operations.

Financial managers decide on funding strategies for company investments.

Issuing equity reduces a company's reliance on debt, thus lowering financial leverage.

The debt-to-equity ratio is computed as total debt divided by total equity.

The trade-off theory advocates for firms to weigh the advantages and drawbacks of debt financing.

Industry norms do not directly influence a company's optimal capital structure.

The Modigliani-Miller theorem asserts that a company's value remains constant regardless of its capital structure.

Pecking order theory posits that companies prioritize debt issuance over equity.

Financial distress curtails a company's capacity to secure external funds.

Bankruptcy costs curtail a firm's capacity to access external funding.

High financial leverage elevates the financial risk borne by a company.

WACC calculation involves multiplying the cost of equity by its weight and the cost of debt by its weight, then summing them up.