What Is the Single Most Important Determinant of Capital Structure

question 2

Multiple Choice

What is the single most important determinant of capital structure for a company?

• A) Business risk
• B) Financial risk
• C) Exchange rate risk
• D) Interest rate risk

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Definitions:

Contribution Margin

The gap between income from sales and variable expenses, which is utilized to pay for fixed expenses and produce earnings.

Selling Price

Selling price is the amount a buyer pays to purchase a product or service from a seller.

Variable Cost

Costs that change in proportion to the level of goods or services produced, such as materials and labor costs.

Fixed Cost

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance, providing predictability but fixed financial commitments.