1.1.a (5 marks) What does capital structure mean?

A. debt-to-equity ratio. B. size of a firms capital. C. ratio of short-term assets to long-term assets.

1.1.b (5 marks) Which of the following statement about perfect capital market is correct? A. Under perfect capital market, there is no corporation income tax. B. If there are positive bankruptcy costs, capital market is not perfect. C. Under perfect capital market, issuing new securities is costless. D. Both B and C are correct. E. A, B, and C are all correct.

1.1.c (5 marks) Under perfect capital market, does capital structure affect a firms overall financing costs? A. Yes. B. No. C. Not sure, need more information.

1.1.d (5 marks) Under perfect capital market, if issuing bonds is cheaper than issuing stock for a firm, is it better to issue bonds than issuing stock? A. Yes. B. No. C. It doesnt matter.