CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 2

Practice CFA 2026 Level II Vignettes Corporate Finance MCQs from Capital Structure. Get instant results with Explanation.

General10 MCQs

1. Vignette 3: Capital Structure - Case Study: According to the pecking order theory, what is the order of preference for financing?

A. Firms prefer equity first, then debt, then internal fundsB. Firms prefer internal funds, then debt, then equityC. Firms prefer debt first, then internal funds, then equityD. Firms use a target capital structure regardless

2. How does asymmetric information affect financing choices?

A. Asymmetric information makes equity more attractiveB. Asymmetric information has no effect on financing decisionsC. Asymmetric information makes equity financing less attractive due to adverse selectionD. Asymmetric information only affects debt financing

3. What does the pecking order theory predict about leverage and profitability?

A. Profitable firms have low leverage because they use retained earningsB. Profitable firms have high leverage because they have more debt capacityC. Profitability is not related to leverageD. The pecking order theory does not consider profitability

4. What does empirical evidence say about the pecking order theory?

A. The pecking order theory is fully supported by evidenceB. The pecking order theory is not supported by evidenceC. The pecking order theory only applies to small firmsD. The pecking order theory is supported by evidence of debt preference and signaling, but has limitations

5. What is the signaling effect of equity issuance?

A. Equity issuance signals good newsB. Equity issuance signals that management thinks the stock is overvaluedC. Debt issuance signals bad newsD. All financing decisions are neutral signals

General10 MCQs

6. Vignette 4: Capital Structure - Case Study: How can debt reduce agency problems between shareholders and managers?

A. Agency conflicts do not exist in firmsB. Debt increases agency costs of equityC. Debt can reduce agency costs of equity by reducing free cash flowD. Debt always increases conflicts

7. What is the free cash flow hypothesis?

A. Debt reduces free cash flow and managerial discretionB. Debt increases free cash flowC. Debt has no effect on free cash flowD. Free cash flow is always beneficial

8. What is the debt overhang problem?

A. Debt overhang encourages investmentB. Debt overhang is only a problem for small firmsC. Debt overhang is a benefit of debtD. Debt overhang leads to underinvestment because shareholders lose incentives

9. What is asset substitution?

A. Asset substitution reduces risk for debtholdersB. Asset substitution is a form of risk shifting that increases agency costsC. Asset substitution is always beneficial for shareholdersD. Asset substitution is not a concern for capital structure

10. How do debt covenants reduce agency costs?

A. Covenants increase agency costsB. Covenants are not used in practiceC. Covenants can reduce agency costs by limiting managerial actionsD. Covenants are only for equity

📋 CFA - Test Online Practice Quizzes

CFA

Conducting Body: CFA Institute

Frequency: 4 times a year (February, May, August, November) | Time: 135 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 90 MCQs):

Alternative Investments: 8 MCQs
Corporate Issuers: 7 MCQs
Derivatives: 5 MCQs
Economics: 7 MCQs
Equity Investments: 12 MCQs
Ethics: 16 MCQs
Financial Statement Analysis: 11 MCQs
Fixed Income: 11 MCQs
Portfolio Management: 9 MCQs
Quant Methods: 6 MCQs

Merit Formula: -

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