CORPORATE QUIZ 5 EXAM QUESTIONS
AND ANSWERS|| GRADED A+|| LATEST
UPDATE 2026
Capital Structure -CORRECTANSWER Mix of debt and equity used to finance a firm
Goal of Capital Structure -CORRECTANSWER Maximize firm value
Firm Value Identity -CORRECTANSWER V = E + D
Enterprise Value -CORRECTANSWER Value of firm's operations independent of capital
structure
Unlevered Firm -CORRECTANSWER Firm with no debt
Levered Firm -CORRECTANSWER Firm that uses debt financing
MM Proposition I (No Taxes) -CORRECTANSWER Firm value is independent of capital
structure
MM Proposition II (No Taxes) -CORRECTANSWER Cost of equity increases with
leverage
, Perfect Capital Market -CORRECTANSWER No taxes, no transaction costs, fair pricing
Free Cash Flow -CORRECTANSWER Cash flow available to all investors
Value of Firm -CORRECTANSWER PV of free cash flows
Equity Value -CORRECTANSWER PV of cash flows to shareholders
Debt Value -CORRECTANSWER PV of promised payments to debt holders
Leverage -CORRECTANSWER Use of debt in capital structure
Debt-to-Equity Ratio -CORRECTANSWER D/E measures leverage
Cost of Unlevered Equity -CORRECTANSWER Return required without debt (rU)
Cost of Debt -CORRECTANSWER Return required by debt holders (rD)
Cost of Levered Equity -CORRECTANSWER rE = rU + (D/E)(rU - rD)
WACC (No Taxes) -CORRECTANSWER Weighted avg cost of capital equals rU
WACC Formula -CORRECTANSWER (E/(E+D))rE + (D/(E+D))rD
AND ANSWERS|| GRADED A+|| LATEST
UPDATE 2026
Capital Structure -CORRECTANSWER Mix of debt and equity used to finance a firm
Goal of Capital Structure -CORRECTANSWER Maximize firm value
Firm Value Identity -CORRECTANSWER V = E + D
Enterprise Value -CORRECTANSWER Value of firm's operations independent of capital
structure
Unlevered Firm -CORRECTANSWER Firm with no debt
Levered Firm -CORRECTANSWER Firm that uses debt financing
MM Proposition I (No Taxes) -CORRECTANSWER Firm value is independent of capital
structure
MM Proposition II (No Taxes) -CORRECTANSWER Cost of equity increases with
leverage
, Perfect Capital Market -CORRECTANSWER No taxes, no transaction costs, fair pricing
Free Cash Flow -CORRECTANSWER Cash flow available to all investors
Value of Firm -CORRECTANSWER PV of free cash flows
Equity Value -CORRECTANSWER PV of cash flows to shareholders
Debt Value -CORRECTANSWER PV of promised payments to debt holders
Leverage -CORRECTANSWER Use of debt in capital structure
Debt-to-Equity Ratio -CORRECTANSWER D/E measures leverage
Cost of Unlevered Equity -CORRECTANSWER Return required without debt (rU)
Cost of Debt -CORRECTANSWER Return required by debt holders (rD)
Cost of Levered Equity -CORRECTANSWER rE = rU + (D/E)(rU - rD)
WACC (No Taxes) -CORRECTANSWER Weighted avg cost of capital equals rU
WACC Formula -CORRECTANSWER (E/(E+D))rE + (D/(E+D))rD
