Which of the Following Are Practical Difficulties Associated with Capital

question 68

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 capitalisation 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 maximise share 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 maximise short-run share price and minimise 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.

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Definitions:

Investing Activities

Transactions involving the acquisition or disposal of non-current assets or other investments not included in cash equivalents.

Contributed Capital

The total value of money or assets that shareholders have directly invested in a company.