1. Which of the following statements is true about the relationship between the debt/assets ratio and the times-interest-earned ratio (TIE) of a firm?
A) If the debt/assets ratio decreases, the TIE ratio will increase.
B) If the debt/assets ratio decreases, the TIE ratio will also decrease.
C) The debt/assets ratio and the TIE ratio are not related to each other.
D) The debt/assets ratio will always be equal to the TIE ratio.
E) If the debt/assets ratio increases, the TIE ratio will also increase.
2. Which of the following plays an important role in determining the capital structure of a firm?
A) Shareholders' expectations
B) Asymmetric information
C) Managerial attitudes
D) Reserve borrowing capacity
E) Bankruptcy-related costs