Which of the Following Are Practical Difficulties Associated with Capital

question 33

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 (r_s 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.

---

Definitions:

Self-worth

The sense of one's own value or worth as a person; self-esteem.

Unconscious Desires

Wishes or wants that reside within the unconscious mind, influencing behavior without the individual's conscious awareness.

Deficiency Needs

are basic requirements for physical and psychological well-being, including needs for food, safety, love, and esteem, as conceptualized by Maslow's hierarchy of needs.

Lower Needs

Fundamental physiological and safety requirements such as food, water, security, and shelter in Maslow's hierarchy of needs.