$12-1.$ In $2012$ AT&T $($T$)$ borrowed $$3$ billion by issuing bonds in the public bond market. Although this may sound like a lot of money, AT&T owed almost $$65$ billion in corporate debt at the end of $2011.$ The company had over $$270$ billion in total assets in $2011.$ How much will the new bond issue increase AT&T$\text{'}$s debt to total assets ratio?

$12-2.$ Distinguish between business risk and financial risk. How do these sources of risk contribute to the overall risk of a firm?

$12-3.$ Define the term financial leverage. Does the firm use financial leverage if preferred stock is present in its capital structure?

$12-4.$ Define the term operating leverage. What type of effect occurs when the firm uses operating leverage?

$12-5.$ A manager in your firm decides to employ break$-$even analysis. Of what shortcomings should this manager be aware?

$12-6.$ Break$-$even analysis assumes linear revenue and cost functions. In reality, these functions may not always be linear over large output and sales levels. Why?

$12-7.$ Define the following terms:

a$.$ Financial structure

b$.$ Capital structure

c$.$ Optimal capital structure

d$.$ Debt capacity

$12-8.$ What is the primary weakness of using EBIT$-$EPS analysis as a tool for evaluating the merits of borrowing versus issuing more stock?

$12-9.$ What is the objective of capital structure management?

$12-10.$ Why might firms whose sales levels change drastically over time choose to use debt only sparingly in their capital structures?

$12-11.$ What does the term independence hypothesis mean as it applies to capital structure theory?

$12-12.$ Many CFOs believe that the firm's composite cost of capital is saucer$-$shaped or U$-$shaped. What does this mean?

$12-13.$ Explain what is meant by the EBIT$-$EPS indifference point as it applies to making a financing decision.

$12-14.$ Explain how the financial manager might use industry norms in the design of the company's financing mix.