If we ignore bankruptcy and agency costs then the optimal capital structure for

Question

If we ignore bankruptcy and agency costs then the optimal capital structure for a firm under the moderate view would be 100% debt.

false

true

Raising funds internally is effectively increasing the investment of the firm's existing common shareholders.

false

true

Operating leverage is easier to control and manage than financial leverage because operating leverage deals with the internal workings of the company while financing deals with outside parties.

false

true

The EBIT-EPS indifference point is the level of production at which the company's EBIT equals its EPS.

false

true

If a firm's production process requires high operating leverage (use of fixed costs), then the firm should finance its assets with debt, so that the cost of capital will be reduced and financing costs will remain fixed.

false

true

Operating leverage is measured as the responsiveness of the firm's earnings before interest and taxes relative to fluctuations in sales.

false

true

false

true

Explanation / Answer

(1) (B) True

(2) (A) False

(3) (B) True

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