Which of the Following Are Practical Difficulties Associated with Capital

question 42

Multiple Choice

Which of the following are practical difficulties associated with capital structure and degree of leverage analyses?

• A)It is nearly impossible to determine exactly how P/E ratios or equity capitalization rates (rs values) are affected by different degrees of financial leverage.
• B)Managers' attitudes toward risk differ and some managers may set a target capital structure other than the one that would maximize stock price.
• C)Managers often have a responsibility to provide continuous service; they must preserve the long-run viability of the enterprise.Thus, the goal of employing leverage to maximize short-run stock price and minimize capital cost may conflict with long-run viability.
• D)All of the above.
• E)None of the above represent a serious impediment to the practical application of leverage analysis to capital structure determination.