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

a. Changes in required returns due to financing decisions..
b. Sales price variability.
c. The extent to which operating costs are fixed.
d. Demand variability
e. The ability to change prices as costs change.

2) From information below, choose the optimal capital structure for Sunshine Company.

a. Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.
b. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.
c. Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.
d. Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.
e. Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.

3) Which of the following is likely to encourage company to utilize more debt in its capital structure?

a. A rise in the corporate tax rate.
b. A rise in the personal tax rate.
c. A decrease in the company's degree of operating leverage.
d. Statements a and c are correct.
e. All of the statements above are correct.

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