1. Which of the following assets would be most suitable to financing with relatively larger amounts of debt?
a. current assets, such as inventory
b. specialized long term assets
c. intangible long term assets
d. tangible (physical), standardized, and widely tradable fixed assets
e. This question is irrelevant because firms should avoid using debt whenever possible.
2. If an airline began to experience reductions in ticket sales associated with news of its difficulty in servicing its debt (making debt payments), this would be an example of
a. agency problems
b. a tax shield
c. financial distress
d. managerial entrenchment
e. the pecking order view of capital structure