1. What are the major limitations of EBIT-EPS analysis as a technique to determine the optimal capital structure?
2. In practice, how can a firm determine whether it is operating at (or near) its optimal capital structure?
3. Under what circumstances should a firm use more debt in its capital structure than is used by the average firm in the industry? When should it use less debt than the average firm?
4. Why do public utilities typically have capital structures with about 50 percent debt, whereas major oil companies average about 25 percent debt in their capital structures?
5. What is cash insolvency analysis, and how can it help in the establishment of an optimal capital structure?