HSMA 4055 Quiz 5 || 100% Accurate Answers.
Which of the following are basic sources (forms) of capital? correct answers Both a and b
(Debt and Equity)
The cost of debt capital to a business is measured by which of the following? correct answers
Interest rate
Which of the following statements about short-term debt is most correct? correct answers Short-
term debt generally has a lower cost than long-term debt.
Which of the following statements about debt contracts is most correct? correct answers Both a
and b are correct.
Debt contracts have several different names.
Debt contracts typically contain restrictive covenants.
Which of the following statements about debt ratings is most correct? correct answers The
ratings reflect the probability of default
Which of the following statements about common stock is incorrect? correct answers The claim
of shareholders on the cash flows of the firm is limited to the dividends that they receive—that
is, they have no claim on a business's residual earnings.
Which of the following statements about the use of debt financing (financial leverage) is
incorrect? correct answers Capital structure theory allows managers to precisely determine the
optimal capital structure for any for-profit business.
Which of the following statements about the trade-off theory of capital structure is most correct?
correct answers The trade-off theory tells us that businesses should use some debt financing, but
not too much.
Which of the following factors influence the estimate of a business's optimal capital structure?
correct answers All of the above
Which of the following statements about cost of capital estimation is most correct? correct
answers None of the above statements is correct.
Which of the following statements regarding the cost of equity is most correct? correct answers
Both a and b are correct.
Generic Health Services has a target capital structure of 30 percent debt and 70 percent equity.
Its cost of debt estimate is 10 percent and its cost of equity estimate is 16 percent. It pays federal,
state, and local taxes at a 40 percent marginal rate. What is the firm's corporate cost of capital?
correct answers 13.0 percent
Which of the following are basic sources (forms) of capital? correct answers Both a and b
(Debt and Equity)
The cost of debt capital to a business is measured by which of the following? correct answers
Interest rate
Which of the following statements about short-term debt is most correct? correct answers Short-
term debt generally has a lower cost than long-term debt.
Which of the following statements about debt contracts is most correct? correct answers Both a
and b are correct.
Debt contracts have several different names.
Debt contracts typically contain restrictive covenants.
Which of the following statements about debt ratings is most correct? correct answers The
ratings reflect the probability of default
Which of the following statements about common stock is incorrect? correct answers The claim
of shareholders on the cash flows of the firm is limited to the dividends that they receive—that
is, they have no claim on a business's residual earnings.
Which of the following statements about the use of debt financing (financial leverage) is
incorrect? correct answers Capital structure theory allows managers to precisely determine the
optimal capital structure for any for-profit business.
Which of the following statements about the trade-off theory of capital structure is most correct?
correct answers The trade-off theory tells us that businesses should use some debt financing, but
not too much.
Which of the following factors influence the estimate of a business's optimal capital structure?
correct answers All of the above
Which of the following statements about cost of capital estimation is most correct? correct
answers None of the above statements is correct.
Which of the following statements regarding the cost of equity is most correct? correct answers
Both a and b are correct.
Generic Health Services has a target capital structure of 30 percent debt and 70 percent equity.
Its cost of debt estimate is 10 percent and its cost of equity estimate is 16 percent. It pays federal,
state, and local taxes at a 40 percent marginal rate. What is the firm's corporate cost of capital?
correct answers 13.0 percent
