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