1. Other things held constant, which of the following events is most likely to encourage a firm to increase the amount of debt in its capital structure?
a. The costs that would be incurred in the event of bankruptcy increase.
b. Management believes that the firm's stock has become overvalued.
c. Its degree of operating leverage increases.
d. The corporate tax rate increases.
e. Its sales become less stable over time.
2. Which of the following statements is CORRECT?
a. The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.
b. The capital structure that minimizes the required return on equity also maximizes the stock price.
c. The capital structure that minimizes the WACC also maximizes the price per share of common stock.
d. The capital structure that gives the firm the best credit rating also maximizes the stock price.
e. The capital structure that maximizes expected EPS also maximizes the price per share of common stock.