Title: Quiz: Capital Structure And Cost Of Capital Quiz
Course: Business_Finance_ > Section: Module5

Q: What does capital structure refer to in business finance?
- The total assets of a company
- The mix of debt and equity used to finance operations
- The company's revenue generation strategy
- The management structure of a company
A: The mix of debt and equity used to finance operations

Q: Which of the following is a primary advantage of debt financing?
- It dilutes ownership
- It allows for tax-deductible interest payments
- It requires no repayment
- It guarantees higher returns for investors
A: It allows for tax-deductible interest payments

Q: How does a high debt-to-equity ratio impact a company's financial risk?
- It decreases financial risk
- It has no impact on financial risk
- It increases financial risk
- It stabilizes financial risk
A: It increases financial risk

Q: Why might a company in a stable industry prefer higher levels of debt financing?
- To maintain financial flexibility
- To leverage their earnings
- To avoid tax obligations
- To increase ownership control
A: To leverage their earnings

Q: What is the purpose of calculating the Weighted Average Cost of Capital (WACC)?
- To determine the total assets of a company
- To evaluate investment opportunities and required returns
- To assess employee performance
- To analyze market competition
A: To evaluate investment opportunities and required returns

Q: Which of the following best describes equity financing?
- It involves borrowing funds that must be repaid
- It allows companies to retain ownership and control
- It raises capital by selling shares of the company
- It requires regular interest payments
A: It raises capital by selling shares of the company

Q: How can understanding capital structure help in making strategic financing decisions?
- By eliminating the need for financial analysis
- By aligning financing choices with long-term objectives
- By ensuring all companies use the same financing model
- By focusing solely on equity financing
A: By aligning financing choices with long-term objectives

Q: What is a potential disadvantage of equity financing?
- It provides access to substantial funds
- It requires repayment over time
- It can dilute ownership and control
- It has lower costs compared to debt
A: It can dilute ownership and control

Q: In the context of capital structure, what does the trade-off theory suggest?
- Companies should always choose equity over debt
- Firms balance the tax advantages of debt with the costs of financial distress
- Debt financing is always more beneficial than equity financing
- Capital structure has no impact on financial strategy
A: Firms balance the tax advantages of debt with the costs of financial distress

Q: How might a company looking to expand utilize debt financing?
- To reduce financial risk
- To leverage growth opportunities
- To avoid dilution of ownership
- To maintain a conservative financial approach
A: To leverage growth opportunities