The Two Main Factors That Determine a Firm's Capital Structure

question 23

Multiple Choice

The two main factors that determine a firm's capital structure are:

• A) whether debt interest payments are tax deductible and how increased debt might affect the likelihood of the firm going bankrupt.
• B) whether debt interest payments are tax deductible and whether or not the bonds could be sold at a premium.
• C) whether the markets are perfectly efficient and whether or not all participants have symmetric information.
• D) none of the options.

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Definitions:

Estimated Life

The projected period over which an asset is expected to be useful in the operations of a business for depreciation purposes.

Capital Expenditure

Long-term investment spent on acquiring or maintaining fixed assets, such as equipment, buildings, or land.

Company Truck

A vehicle owned by a business, used for the company's operations or logistical needs.

Company Car

A vehicle provided by a company for the business and sometimes personal use of its employees.