Why is the mix of debt and equity crucial for an organization's capital structure? A. Because it determines the company's market share. B. Because it affects the company's ownership and repayment obligations. C. Because it influences the company's marketing strategy. D. Because it decides the company's production capacity.
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Capital structure refers to the way a company finances its operations and growth through a combination of debt (loans, bonds) and equity (stocks, retained earnings). Show more…
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Which of the following statements about capital structure are correct? Select ALL correct answers. Having too little debt may increase the risk of default in repayment. A company should always finance its business using as much debt as possible in order to optimize the capital structure. A company needs to consider the current economic climate when making decisions on debt and equity proportions. Having too much equity may dilute earnings and the value of the original investors.
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A firm’s ________ define(s) its capital structure. Multiple Choice proportions of financing from debt and equity combination of cash and cash equivalents investment selections for its excess cash reserves mixture of various types of production equipment combination of accounts appearing on the left side of its balance sheet
An ideal capital structure would involve no owner equity and 100 percent borrowing. Why is this capital structure not realistic? Select an answer: Lenders will be wary of a company with a high amount of debt. When a company relies on borrowing, employees tend toward lower productivity. Owners will want a say in how the business is run. You will lose the tax benefit of paying dividends to owners. How does "discounting" work in capital budgeting? Select an answer: Increases in cash flows are discounted as only being seasonal. Future cash flows are discounted by realistic expectations. Present cash flows are discounted by the interest rate. Future cash flows are discounted by the interest rate. Why should you utilize financial institutions to handle your investments? Select an answer: You are able to outsource complicated tasks to an expert. You are able to outsource other complicated tasks so you can focus on risk. You are able to outsource your investments in return for regular updates. You are able to outsource complicated tasks in return for a guaranteed return.
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