Which of the following factors directly influence capital structure decisions?
I. Business risk -
II. Availability of various sources of capital under attractive terms
III. Expropriation risk -
IV. The firm's tax position -
V. Management's subjective attitudes toward risk
VI. Country risk -
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A. B. C. D. E.Explanation
There are four primary factors which influence capital structure decisions: business risk, financial flexibility, the firm's tax position, and management's subjective attitudes toward risk. Business risk is defined as the riskiness of a firm if it uses no debt. Financial flexibility refers to the ability of a company to easily raise various sources of capital under favorable terms. "Expropriation risk," and "country risk," while legitimate forms of risk, are not directly applicable to the capital structure decision. Expropriation risk is defined as the risk that a firm's existing assets and facilities will be seized, or "expropriated" by a governmental, social, or military entity. This risk is frequently incorporated into discussions of international operations.