LSUS MHA 706 Module 5 Quiz
Capital & Debt Structures + Time Value of Money
2026/2027 | Newly Released
Q & A with Rationales |Guaranteed pass |100% Correct
Q1: The concept that a dollar received today is worth more than a dollar received in the
future is best described as:
A. The leverage principle.
B. The time value of money. [CORRECT]
C. The liquidity preference theory.
D. The matching principle.
Correct Answer: B
Rationale: The time value of money reflects the potential earning capacity of money
over time, making a current sum more valuable than an identical future sum.
Q2: In the context of capital structure, what is the primary advantage of using debt
financing?
A. It dilutes ownership control.
B. Interest payments are tax-deductible, creating a tax shield. [CORRECT]
C. It eliminates bankruptcy risk.
D. It requires no repayment of principal.
Correct Answer: B
, Rationale: Debt financing provides a tax advantage because interest expense reduces
taxable income, thereby lowering the organization's effective cost of capital.
Q3: Which of the following represents the formula for the Future Value (FV) of a single
lump sum?
A. FV = PV / (1 + r)^n
B. FV = PV * (1 - r)^n
C. FV = PV * (1 + r)^n [CORRECT]
D. FV = PV * r * n
Correct Answer: C
Rationale: The formula calculates how much a present value will grow over n periods
at a compound interest rate r.
Q4: A hospital is evaluating two mutually exclusive projects. Project A has an NPV of
$50,000 and an IRR of 12%. Project B has an NPV of $60,000 and an IRR of 11%.
Assuming the cost of capital is 10%, which project should be chosen?
A. Project A, because it has a higher IRR.
B. Project B, because it has a higher NPV. [CORRECT]
C. Project A, because it exceeds the cost of capital by a wider margin.
D. Neither, as both exceed the cost of capital.
Correct Answer: B
Rationale: When NPV and IRR conflict for mutually exclusive projects, NPV is the
superior decision rule because it directly measures the increase in shareholder value.
Q5: CALCULATION: St. Jude Medical Center has a target capital structure of 40% debt
and 60% equity. The cost of debt (before tax) is 6%, and the cost of equity is 10%. The
tax rate is 30%. What is the Weighted Average Cost of Capital (WACC)?
Capital & Debt Structures + Time Value of Money
2026/2027 | Newly Released
Q & A with Rationales |Guaranteed pass |100% Correct
Q1: The concept that a dollar received today is worth more than a dollar received in the
future is best described as:
A. The leverage principle.
B. The time value of money. [CORRECT]
C. The liquidity preference theory.
D. The matching principle.
Correct Answer: B
Rationale: The time value of money reflects the potential earning capacity of money
over time, making a current sum more valuable than an identical future sum.
Q2: In the context of capital structure, what is the primary advantage of using debt
financing?
A. It dilutes ownership control.
B. Interest payments are tax-deductible, creating a tax shield. [CORRECT]
C. It eliminates bankruptcy risk.
D. It requires no repayment of principal.
Correct Answer: B
, Rationale: Debt financing provides a tax advantage because interest expense reduces
taxable income, thereby lowering the organization's effective cost of capital.
Q3: Which of the following represents the formula for the Future Value (FV) of a single
lump sum?
A. FV = PV / (1 + r)^n
B. FV = PV * (1 - r)^n
C. FV = PV * (1 + r)^n [CORRECT]
D. FV = PV * r * n
Correct Answer: C
Rationale: The formula calculates how much a present value will grow over n periods
at a compound interest rate r.
Q4: A hospital is evaluating two mutually exclusive projects. Project A has an NPV of
$50,000 and an IRR of 12%. Project B has an NPV of $60,000 and an IRR of 11%.
Assuming the cost of capital is 10%, which project should be chosen?
A. Project A, because it has a higher IRR.
B. Project B, because it has a higher NPV. [CORRECT]
C. Project A, because it exceeds the cost of capital by a wider margin.
D. Neither, as both exceed the cost of capital.
Correct Answer: B
Rationale: When NPV and IRR conflict for mutually exclusive projects, NPV is the
superior decision rule because it directly measures the increase in shareholder value.
Q5: CALCULATION: St. Jude Medical Center has a target capital structure of 40% debt
and 60% equity. The cost of debt (before tax) is 6%, and the cost of equity is 10%. The
tax rate is 30%. What is the Weighted Average Cost of Capital (WACC)?
