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1. Business risk is concerned with operations of the firm. Which of the given is not related with (or not a part of) business risk?

a. Demand variability.

b. Sales price variability.

c. Extent to which operating costs are fixed.

d. Changes in required returns due to financing decisions.

e. Ability to change prices as costs change. 

2. From information below, choose optimal capital structure for Minnow Entertainment Company.

a. Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.

b. Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.

c. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.

d. Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.

e. Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.

3.Which of the given is likely to encourage company to use more debt in its capital structure?

a. Increase in the corporate tax rate.

b. Increase in the personal tax rate.

c. Decrease in the company's degree of operating leverage.

d. Statements a and c are right.

e. All the statements above are right.

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  • Category:- Accounting Basics
  • Reference No.:- M917099

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