Corporate Capital Structure Quiz

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Test your grasp of financing sources and capital structure.

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Vivian Barney

Estados Unidos

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Corporate Capital Structure Quiz


Corporate Capital Structure QuizVersión en línea Test your grasp of financing sources and capital structure. por Vivian Barney 1 According to trade-off theory, firms balance debt benefits against: a The volatility of dividend payments b The expected costs of financial distress c The cost of issuing new equity d The risk of dilution of ownership 2 Why are debt interest payments advantageous in many jurisdictions? a They reduce EPS b They increase operating leverage c They reduce asset turnover d They create a tax shield that lowers the cost of debt 3 One drawback of heavy equity reliance is: a Loss of control due to ownership dilution b Rising fixed obligations c Increased bankruptcy probability d Decreased firm valuation from leverage 4 Which source typically has the lowest explicit cost but highest opportunity cost? a Retained earnings b Debt c Common equity d Preferred stock 5 Pecking order theory predicts firms finance with: a External funds over internal funds b Debt, then equity, then retained earnings c Retained earnings, then debt, then new equity d Equity first to avoid distress 6 A drawback of retained earnings as primary funding is: a It forgoes potential shareholder wealth through dividends b It increases mandatory cash outflows c It reduces flexibility in downturns d It dilutes ownership 7 A firm with high business risk tends to: a Finance with debt to maximize tax shield b Issue preferred stock to retain control c Maximize leverage to boost ROE d Avoid debt financing to reduce distress risk 8 Unique disadvantage of preferred stock vs debt: a Shareholders have voting rights b Dividends are legally enforceable obligations c Preferred dividends are not tax-deductible d Preferred stock increases bankruptcy risk 9 Modigliani-Miller Proposition I (no taxes) says: a Firms should maximize equity to reduce risk b Debt always increases firm value c The value of the firm is independent of its capital structure d Equity minimizes cost of capital 10 Convertible bonds are issued mainly to: a Completely avoid dilution b Secure long-term financing without tax benefits c Lower current borrowing cost with upside for investors d Eliminate distress risk 11 Which financing improves WACC in a tax-paying jurisdiction with moderate leverage? a Retained earnings b Common equity issuance c Long-term debt d Preferred stock 12 Excessive debt financing may lead to: a Increased WACC due to distress costs b Decreased agency costs of equity c Higher EPS without risk d Elimination of the tax shield 13 An agency cost of equity financing can arise when: a Management takes on suboptimal risk due to dispersed ownership b Lenders impose covenants c Shareholders get tax shields at creditors' expense d Bondholders demand higher rates 14 Why might high-growth industries prefer equity? a Growth firms lack stable cash flows to service debt b Equity avoids opportunity costs of retained earnings c Equity reduces ownership dilution in growth d Dividends are tax-deductible 15 Best combination: debt vs equity advantages and disadvantages? a Debt reduces distress but taxes; equity increases risk b Debt provides tax shields but distress risk; equity avoids distress but dilutes ownership c Debt increases liquidity and profitability; equity raises risk d Debt ensures flexibility; equity increases default risk

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Corporate Capital Structure Quiz

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Corporate Capital Structure QuizVersión en línea

por Vivian Barney

According to trade-off theory, firms balance debt benefits against:

Why are debt interest payments advantageous in many jurisdictions?

One drawback of heavy equity reliance is:

Which source typically has the lowest explicit cost but highest opportunity cost?

Pecking order theory predicts firms finance with:

A drawback of retained earnings as primary funding is:

A firm with high business risk tends to:

Unique disadvantage of preferred stock vs debt:

Modigliani-Miller Proposition I (no taxes) says:

Convertible bonds are issued mainly to:

Which financing improves WACC in a tax-paying jurisdiction with moderate leverage?

Excessive debt financing may lead to:

An agency cost of equity financing can arise when:

Why might high-growth industries prefer equity?

Best combination: debt vs equity advantages and disadvantages?