Logical Reasoning Question 26
Question; Direction; Study the following passage carefully and answer the questions given below:
Many academics have researched the relevance of capital structure choice and used many drivers to explain the choices of capital structure, with the drivers of cost of debt and capital structure being the core focus of many researchers. The companies monitor their capital structure and pay attention to their level of leverage and to drivers that influence their cost of financing. The arguments on the degree of relevance of capital structure are presented first, then the key drivers of capital structure choice used by different researchers, and lastly the relevance of business and industry profitability and risk were considered. Why is relevancy considered first and risks considered last?
Options:
A) In order to leverage the profitability of the investment
B) In order to ensure cost-effectiveness
C) In order to form a capital structure, it is necessary to determine the optimal mix of debt and equity financing.
D) (a) and (c)
Show Answer
Answer:
Correct Answer; B
Solution:
(b) Reasoning type; Conditional Reasoning Focus of the question; Assumption Relationship analogy; Degrees of a Characteristic Analogy The question focuses on the assumption for the priority relevancy and risks. It is because the companies mostly depend on relevance of capital structure choice. So, it is important to ensure cost of financing or cost effectiveness to assess the degree of relevance at first and then the risk factors.
BETA
