DESCRIPTIVE QUESTIONS
  1. What do you mean by financial leverage? Mention the features of a sound capital structure.
  2. Explain the M-M hypothesis indicating that financial leverage does not have an influence on the value of the corporate wealth. Is this true when taxes exist?
  3. Does EPS improve in the wake of financial leverage? Explain.
  4. “Financial leverage reduces the WACC but at the same time gives rise to financial risk borne by the shareholders”. Discuss.
  5. Can the capital structure be an optimal one? Explain and discuss the ways in which to achieve the optimal situation.
  6. Are the personal income tax, agency cost and bankruptcy cost relevant in the context of optimising the capital structure?

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