CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Capital Structure Free Quiz 3

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

General10 MCQs

1. Vignette 5: Capital Structure - Case Study: A company is deciding on its capital structure. What factors should it consider?

A. All firms have the same optimal capital structureB. The optimal capital structure is 50% debt, 50% equityC. Managers do not consider capital structure decisionsD. Capital structure decisions are influenced by business risk, taxes, flexibility, and industry norms

2. How does business risk affect capital structure?

A. High business risk companies should use less debtB. High business risk companies should use more debtC. Business risk does not affect capital structureD. Business risk only affects equity cost

3. What is the relationship between profitability and leverage?

A. High profitability leads to high leverageB. High profitability leads to low leverage (less debt needed)C. Profitability does not affect leverageD. High profitability always increases debt capacity

4. How do tangible assets affect a company's ability to use debt?

A. Tangible assets reduce debt capacityB. Tangible assets are not related to leverageC. Tangible assets increase debt capacity due to collateral valueD. Tangible assets only affect equity cost

5. What is financial flexibility and how does it affect capital structure?

A. Financial flexibility is not importantB. Financial flexibility means using as much debt as possibleC. Financial flexibility is only relevant for small firmsD. Maintaining financial flexibility may lead to lower leverage

General10 MCQs

6. Vignette 6: Capital Structure - Case Study: A company has an unlevered beta of 0.8, a tax rate of 30%, and a debt-to-equity ratio of 0.5. What is its levered beta?

A. β_L = β_UB. β_L = β_U × [1 + (1 – T) × (D/E)]C. β_L = β_U / [1 + (1 – T) × (D/E)]D. β_L = β_U × (1 + D/E)

7. Calculate the levered beta.

A. 0.80B. 0.95C. 1.08D. 1.20

8. How does leverage affect beta and cost of equity?

A. Leverage increases both beta and cost of equityB. Leverage decreases betaC. Leverage has no effect on betaD. Leverage only affects the cost of debt

9. What is the re-levering process?

A. Re-levering is not necessaryB. Re-levering uses the same D/E for all projectsC. Re-levering adjusts for tax differences onlyD. Re-levering adjusts the beta to reflect the project's target capital structure

10. How should the capital structure of a project affect its cost of capital?

A. Use the company's WACC for all projectsB. Use the project-specific cost of capital based on its own capital structureC. Use the cost of equity onlyD. Use the cost of debt only

📋 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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