TRUE/FALSE
1.Capital structure refers to the relative amounts of debt and equity used by a company to finance its assets.
2.Return on equity is computed as net income divided by total assets.
3.Liquidity is a measure of the use of debt to increase a company's return on equity.
4.Financial leverage works for the benefit of stockholders when a company performs well and against stockholders when a company performs poorly.
5.Return on equity = return on assets x financial leverage.
6.A firm can improve its debt to equity ratio by acquiring assets through capital leases instead of through purchases.
7.Limitations on a company's ability to borrow additional money or pay dividends or requiring a certain debt ratio are
default limitations.
8.As the amount of debt in a company's capital structure increases, the
default risk
increases.
9.Almost all successful corporations have a high
dividend payout ratio.
10.The market value used in the
market to book value ratio
is computed as the price of a firm's stock multiplied by the number of shares of stock outstanding.