 |  Capital Structure 24 Flashcards |  Start |
 | 1 / 24 What is the optimal capital structure aimed at achieving?
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| 2 / 24 The optimal capital structure aims to lower the cost of capital and maximize the value of the firm.
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| 3 / 24 The Net Income Approach assumes that the cost of debt remains ___ regardless of the level of debt.
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| 4 / 24 Constant
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| 5 / 24 How does the stability of earnings influence a company's capital structure?
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| 6 / 24 Stability of earnings affects debt levels.
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| 7 / 24 True or False: The Modigliani and Miller Approach asserts that a firm's capital structure affects its overall value.
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| 8 / 24 False: The Modigliani and Miller Approach states that capital structure is irrelevant to a firm's overall value.
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| 9 / 24 What factor does a company consider if it wishes to retain control while raising capital?
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| 10 / 24 The company may opt for debt financing or preference shares instead of issuing equity shares, as equity issuance dilutes ownership.
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| 11 / 24 Fill in the blank: The degree of operating leverage measures the sensitivity of a company’s operating income to changes in ___ sales.
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| 12 / 24 Sales
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| 13 / 24 Which approach suggests that a firm's value is determined solely by its operating income and investment risk?
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| 14 / 24 The Net Operating Income (NOI) Approach.
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| 15 / 24 What is the primary criticism of the Net Income Approach?
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| 16 / 24 It assumes that the cost of debt remains constant and ignores the risk perception changes of equity shareholders with increasing leverage.
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| 17 / 24 How does government policy affect a company's capital structure decisions?
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| 18 / 24 Government regulations can impact the cost and availability of financing options, influencing whether companies choose debt or equity.
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| 19 / 24 What does the debt-equity ratio indicate in a company's capital structure?
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| 20 / 24 The debt-equity ratio indicates the proportion of debt financing relative to equity financing in a company's capital structure.
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| 21 / 24 True or False: A higher debt-equity ratio signifies a lower financial risk for a company.
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| 22 / 24 False: A higher debt-equity ratio typically signifies higher financial risk due to increased obligations to pay interest.
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| 23 / 24 What is the significance of the debt-equity ratio in determining a company's capital structure?
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| 24 / 24 The debt-equity ratio indicates capital structure.
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