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1) Which of the following is true concerning the capital structure choice and the life cycle of the firm?

	a.	Agency costs are high for firms in decline.
	b.	The need for flexibility is low for startups and firms that are rapidly expanding.
	c.	During the mature growth phase the need for added discipline associated with debt is high.
	d.	The impact of bankruptcy costs are low for start ups.

2) Which of the following best describes the relationship between an optimal capital structure and the value of the firm?

	a.	At the optimal capital structure, the cost of capital will be minimized. Moving to the optimal capital structure will maximize the theoretical value of the firm since the PV of any cash flows increases as the discount rate decreases.
	b.	At the optimal capital structure the value of the firm will be minimized.
	c.	At the optimal capital structure, the cost of debt will be minimized allowing the firm to borrow at a cheaper rate and increasing the value of the firm.
	d.	At the optimal capital structure the cost of equity will be minimized allowing the firm to raise new funds at a cheaper rate and increasing the value of the firm.

3) Which of the following is a gradual approach to increasing the firms level of debt?

	a.	Financing new projects with a higher level of debt than the current capital structure.
	b.	Borrowing money and buying back shares of stock.
	c.	Selling assets and using the cash to buy back shares of stock.
	d.	Debt for Equity swap.

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