[1] The explicit costs, such as the legal expenses, associated with corporate default are classified as _____ costs. [A] beta conversion [B] direct bankruptcy [C] indirect bankruptcy [2] An indirect cost of bankruptcy is the loss of key employees. [A] True [B] False [3] A legal attempt to financially restructure a failing firm so that it can continue operating as a going concern is called a reorganization. [A] True [B] False [4] The optimal capital structure has been achieved when the: [A] weight of equity is equal to the weight of debt. [B] debt-to-equity ratio selected results in the lowest possible weighted average cost of capital. [C] cost of equity is maximized. [5] The optimal capital structure will tend to include more debt for firms with: [A] less taxable income. [B] lower probability of financial distress. [C] substantial tax shields from other sources.