1. Which of the following factors influence(s) the estimate of a business's optimal capital structure?

a. The amount of business (inherent) risk

b. Lender/rating agency attitudes

c. Industry averages

d. The need to maintain financial flexibility (reserve borrowing capacity)

e. All of the above

2. If debt financing is used in a for-profit corporation, more of a firm's operating income is available for distribution to investors (owners and creditors). The additional available operating income arises as a result of

a. greater operating expenses

b. greater operating revenue

c. reduced operating expenses

d. lower dividends

e. tax savings