Principles of Finance · free preview
The Concept of Capital Structure
Capital structure is the mix of debt and equity funding the firm, debt brings tax-deductible interest and discipline but fixed obligations, equity brings permanence and flexibility at higher cost, and the mix shapes every financial ratio and decision.
1. The mix that funds the firm
The mix that funds the firm
2. Debt's advantages and costs
Debt's advantages and costs
3. Equity's compensating virtues
Equity's compensating virtues
4. Structure as strategy
Structure as strategy
5. Defining capital structure
Which statement correctly defines a firm's capital structure?
6. Debt's tax advantage
Why is debt's interest expense cheaper than it appears in the firm's cash flows?
7. Equity's shock absorber
Why does equity function as the shock absorber of the capital structure?
8. The disciplinary virtue
How does debt discipline management according to the agency lessons?
9. Lifecycle structure
Why do firms typically run conservative structures early and levered structures at maturity?
10. Structure as signal
According to the lesson, what does a confident debt issuance signal to markets?
11. The fixed claim's name
What one-word term names a financing claim with contractual interest and priority in distress? Answer in lowercase.
12. The residual claim's name
What one-word term names the financing claim paid last with discretionary distributions? Answer in lowercase.
13. The mix's balance sheet side
Capital structure describes which side of the balance sheet? Answer with two words.
14. The debt ratio's family
What two-word ratio family, from the health module, quantifies the capital structure's leverage? Answer in lowercase.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free