Capital Structure Adjustment
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Questions and Answers

What could result in significant changes in a firm's book value equity?

  • A change in the general level of interest rates
  • A reduction in its default risk
  • A decrease in interest rates
  • High profits or losses (correct)

    • Why might a firm's debt's market value change?

  • Due to a decrease in the firm's default risk
  • Due to a change in the firm's profitability
  • Due to a change in the firm's market value
  • Due to a change in the general level of interest rates (correct)

    • What is a possible reason for a firm to deliberately take management actions to change its capital structure?

  • To increase its default risk
  • To move its actual capital structure towards its target (correct)
  • To reduce its profitability
  • To maintain its current market value

    • What is a potential outcome of a change in a firm's stock price?

    <p>A change in its debt-to-equity ratio</p> Signup and view all the answers

    What is a possible way for a firm's capital structure to change without any deliberate management actions?

    <p>Through changes in the market value of its debt and/or equity</p> Signup and view all the answers

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