Not All Firms Have the Same Optimal Capital Structure

question 51

Multiple Choice

Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include:

• A) the industry in which it operates.
• B) the volatility of its sales and operating income.
• C) the collateral value of its assets.
• D) all of the above

Appreciate the impact of the market risk premium on the cost of equity.

Recognize the influence of a firm's beta on investment decisions through project examples.

Identify how the sensitivity of the model to growth rate impacts the cost of equity estimations.

Understand the implication of risk aversion changes on cost of capital using the SML approach.

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Definitions:

Article 2

A section of the Uniform Commercial Code that governs the sale of goods, specifying the rights, duties, and liabilities of parties involved.

Vehicles

Means of transport that are designed to move people or goods from one place to another, including cars, trucks, buses, and bicycles.

Appliances

Electrical or mechanical devices designed to perform household functions, such as refrigerators or washing machines.

Stocks

Financial instruments that represent ownership shares in a corporation, giving holders a claim on the corporation's earnings and assets.