I have a 40 question quiz multiple choice. Word file uploaded

Question 1.1. Basic sources (forms) of capital include which of the following? (Points : 1) Convertible bonds Leases Equity Both (a) and (b) Debt Question 2.2. The cost of debt capital to a business is measured by (Points : 1) none of the above the amount borrowed the maturity date the cost of equity the interest rate Question 3.3. Which of the following statements about debt contracts is(are) most correct? (Points : 1) Answers (a), (b), and (c) all are correct. All debt contracts name a trustee. Debt contracts have several different names. Both (a) and (b) are correct. Debt contracts typically contain restrictive covenants. Question 4.4. Which of the following statements about debt ratings is most correct? (Points : 1) The ratings run from A (for the best) to F (for the worst). The ratings are important to investors but unimportant to issuers. The ratings reflect the probability of default. The ratings on outstanding debt are automatically reviewed and updated annually. The ratings are based solely on a quantitative analysis of the issuer's financial condition. Question 5.5. The liquidity premium on a US Treasury debt security is normally considered to be (Points : 1) 0 percent 2 percent 3 percent 4 percent 1 percent Question 6.6. Which of the following statements about term structure is(are) most correct? (Points : 1) Term structure is the relationship between interest rates and debt maturities. A term structure graph is called the yield curve. All of the above statements are correct. Term structure can be expressed either in tabular form or in graphical form. The yield curve can have a variety of shapes, but the most common is upward sloping. Question 7.7. What is the value of a 10 percent annual coupon, $1,000 par value bond with 20 years to maturity if the required rate of return on the bond is 12 percent? (Points : 1) $1,236.48 $850.61 $798.79 $737.55 $925.42 Question 8.8. What is the yield to maturity on a 30-year, 10 percent annual coupon bond with a $1,000 par value that is currently selling for $1,225.16? (Points : 1) 7.2 percent 8.6 percent 9.2 percent 8.9 percent 8.0 percent Question 9.9. Which of the following statements regarding corporate bonds is most correct? (Points : 1) Debentures are riskier than subordinated debentures because they are paid last in the event of bankruptcy. Mortgage bonds are riskier than debentures because the value of the asset pledged as collateral may not be sufficient to repay the mortgage. Debentures are secured by the asset purchased with the loaned funds. None of the above statements is correct. The interest rate on subordinated debentures is likely to be higher than the interest rate on debentures. Question 10.10. Which of the following statements is most correct? (Points : 1) Variable rate debt never should be used by healthcare organizations because it is too risky. Variable rates are equally risky for the lender and the borrower. Compared to fixed interest rates, variable rates are riskier for the lender but less risky for the borrower. Fixed interest rates are more prevalent when long-term borrowing rates are high. Compared to fixed interest rates, variable rates are riskier for the borrower but less risky for the lender. Question 11.11. Which of the following statements is most correct? (Points : 1) There is no difference in risk to the investor between similar callable and noncallable bonds. Noncallable bonds are riskier to the investor, while callable bonds are riskier to the issuer. The interest rate on a new issue of callable bonds is likely to be equal to that on a similar new issue of noncallable bonds. The interest rate on a new issue of noncallable bonds is likely to exceed that on a similar new issue of callable bonds. The interest rate on a new issue of callable bonds is likely to exceed that on a similar new issue of noncallable bonds. Question 12.12. Which of the following statements is false? (Points : 1) The price of a bond at its maturity is equal to the final coupon payment. When interest rates fall, bond prices on outstanding issues rise. When interest rates rise, bond prices on outstanding issues fall. When the required rate of return on a bond equals its coupon rate, the bond will sell at its par value. The required rate of return on an outstanding bond is the current rate of interest on similar bonds of equal risk. Question 13.13. Assume that an outstanding seven-year bond has $1,000 par value, a coupon rate of 10 percent, and five years remaining to maturity. If the required rate of return on similar bonds of equal risk is 5 percent, the bond will sell at which of the following? (Points : 1) At par value The bond cannot be sold again because it is already outstanding. At $500 ($100 annual interest payments x 5 years to maturity) A discount A premium Question 14.14. The price of an outstanding bond is determined by which of the following? (Points : 1) The required rate of return on similar bonds All of the above The time to maturity The bond's par value The bond's coupon rate Question 15.15. Which of the following statements about common stock is incorrect? (Points : 1) Common stockholders are the owners of for-profit corporations. The preemptive right gives current stockholders the right to purchase any new shares issued by the company. The claim of shareholders on the cash flows of the firm is limited to the dividends they receive (i.e., they have no claim on a business's residual earnings). In the event of bankruptcy and liquidation, shareholders often receive none of the proceeds. Stockholders exercise control over the company by voting for board members. Question 16.16. Assume that US Medware is a constant growth company whose last dividend per share (D0) was $1.00. The dividend is expected to grow at a constant rate of 8 percent per year. What is the stock's value if investors require a 15 percent rate of return? (Points : 1) $15.11 $14.89 $15.43 $16.06 $14.53 Question 17.17. What is the expected rate of return on National Healthcare's stock if the next expected dividend (D1) is $3, the stock is currently selling for $30, and it has an expected constant growth rate of 6 percent? (Points : 1) 16 percent 17 percent 18 percent 15 percent 19 percent Question 18.18. Which of the following statements about efficient markets is(are) most correct? (Points : 1) Investors should not expect to "beat the market." Not all markets are efficient. For example, the market for real assets is not efficient. All of the above statements are correct. In the long run, investors should expect to earn only a return commensurate with the risk assumed. Current prices reflect all publicly available information. Question 19.19. Assume that the risk-free rate is 8 percent, the required rate of return on the market (or an average-risk stock) is 13 percent, and the required rate of return on Acme Healthcare stock is 15 percent. What is the implied beta coefficient of the stock? (Points : 1) 1.4 1.0 1.5 1.2 0.8 Question 20.20. Gold Coast Health System just paid an annual dividend of $1.50, which is expected to grow at a constant rate of 5 percent per year. If the current required rate of return is 15 percent, what is the value of Gold Coast's stock? (Points : 1) $15.75 $15.00 $15.25 $14.75 $15.50 Question 21.21. Managed Healthcare's current stock price is $25, its next per share dividend (assumed to be paid annually) is forecasted to be $1.00, and analysts expect the company to grow at a constant annual rate of 10 percent. What is the stock's expected rate of return? (Points : 1) 15.0 percent 14.0 percent 13.0 percent 12.0 percent 11.0 percent Question 22.22. Which of the following methods for raising equity capital is not available to notfor-profit corporations? (Points : 1) Retained earnings Government grants Religious organizations Private contributions Common stock sales Question 23.23. Investor-owned (for-profit) firms receive the proceeds from stock sales in which of the following markets? (Points : 1) Answers (a), (b), and (c) Primary market Secondary market IPO market Answers (a) and (b) Question 24.24. Under the constant growth model of stock valuation, the expected value of a stock (i.e., the expected price at the end of the year) is a function of which of the following? (Points : 1) None of the above The most recent dividend, the expected dividend growth rate, and the expected capital gains yield The most recent dividend, the expected dividend growth rate, and the required rate of return on the stock The expected dividend growth rate, the required rate of return on the stock, and the expected capital gains yield The most recent dividend, the expected dividend growth rate, the required rate of return on the stock, and the expected capital gains yield Question 25.25. Assume you have compiled the following information regarding a stock: Last dividend paid: $0.75 per share Expected constant dividend growth rate: 8 percent Current actual stock price: $14.57 per share Beta coefficient: 0.88 Risk-free rate of return: 5 percent Required rate of return on the market portfolio: 15 percent What is the expected current value of the stock? (Points : 1) $14.57 $7.94 $11.57 $5.43 $13.97 Question 26.26. Which of the following would increase the expected current value of a stock valued using the constant growth model of stock valuation? (Points : 1) Answers (b) and (c) A decrease in the expected dividend growth rate Answers (a) and (c) A decrease in the required rate of return An increase in the expected dividend growth rate Question 27.27. Which of the following is not part of the theory of informational efficiency and the efficient markets hypothesis? (Points : 1) The market contains many buyers and sellers. Buyers and sellers do not act rationally. All information relevant to the values of traded securities can be obtained easily and at low cost. All information contained in past price movements is fully reflected in current prices. Current market prices reflect all publically available information. Question 28.28. Which of the following is not a source of equity capital in not-for-profit corporations? (Points : 1) Bond issues Government grants Charitable donations Start-up capital from religious, educational, or governmental entities Retained earnings Question 29.29. Which of the following statements about the use of debt financing (financial leverage) is incorrect? (Points : 1) Debt financing allows more of a business's operating income to flow through to investors. Capital structure theory enables managers to precisely determine the optimal capital structure for any for-profit business. In most situations, the use of debt financing increases the return to owners (say, as measured by ROE). In all situations, the use of debt financing increases the riskiness to owners. Because debt financing "levers up" (increases) owners' returns, its use is called "financial leverage." Question 30.30. Which of the following statements about the trade-off theory of capital structure is most correct? (Points : 1) The trade-off theory tells us that businesses should use almost no debt financing. The trade-off theory has no applicability to not-for-profit businesses. The trade-off theory tells us that businesses should use some debt financing but not too much. The trade-off theory tells us that businesses should use almost 100 percent debt financing. The trade-off theory can be used to set a precise optimal structure for any given business. Question 31.31. Which of the following factors influence(s) the estimate of a business's optimal capital structure? (Points : 1) Industry averages All of the above Lender/rating agency attitudes The need to maintain financial flexibility (reserve borrowing capacity) The amount of business (inherent) risk Question 32.32. Which of the following statements about cost of capital estimation is most correct? (Points : 1) The corporate cost of capital is used as the hurdle (discount) rate for all projects being evaluated in the organization. None of the above statements is correct. In general, at least five methods are used to estimate the cost of debt. Because there is no tax savings associated with debt issued by not-for-profit organizations, it is theoretically wrong to recognize the savings for investor-owned businesses. The corporate cost of capital is either the cost of equity or the cost of debt, whichever is greater. Question 33.33. Which of the following statements regarding the cost of equity is(are) most correct? (Points : 1) The cost of equity for a not-for-profit hospital is zero. The cost of debt is the interest rate set on debt financing, while the cost of equity is defined similarly; it is the rate of return required by equity investors. Answers (a) and (b) are correct. The debt cost plus risk premium method is one way to estimate the cost of equity. Answers (a), (b), and (c) are correct. Question 34.34. 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? (Points : 1) 12.5 percent 12.1 percent 13.8 percent 13.0 percent 14.0 percent Question 35.35. If debt financing is used in a for-profit corporation, more of a firm's operating income is available for distribution to investors (owners and creditors). The additional available operating income arises as a result of (Points : 1) greater operating revenue greater operating expenses tax savings reduced operating expenses lower dividends Question 36.36. Which of the following statements is most correct? (Points : 1) For-profit firms always should retain the full amount of net income and reinvest it in the business. Equity generated by retained earnings is costless. For-profit firms always should pay out the full amount of net income as dividends. None of the above statements is correct. For-profit firms should distribute net income through dividends if they cannot earn as much as stockholders could in similar risk investments. Question 37.37. Assume a for-profit skilled nursing facility chain has a target capital structure that is 40 percent debt and 60 percent equity. Assume the chain plans to finance a new project with 50 percent debt and 50 percent equity. The marginal before-tax cost of debt is 8 percent, the tax rate is 35 percent, and the marginal cost of equity is estimated to be 14 percent. What is the organization's corporate cost of capital (rounded to the nearest tenth of a percent)? (Points : 1) 10.5 percent 11.6 percent 9.6 percent 11.0 percent 22.0 percent Question 38.38. Limitations of using a pure play and the CAPM to estimate the cost of capital for a small business include which of the following? (Points : 1) Small businesses are typically less diversified than large companies. Answers (a) and(c) are correct. Answers (a), (b), and (c) are correct. An ownership position in a small business may be less liquid than the stock of a large company. Employee owners of small businesses receive returns both through employment earnings and return on equity versus through stockholder returns alone. Question 39.39. Which of the following approaches is(are) not typically used to develop the cost of equity for a large, publicly traded company? (Points : 1) Capital asset pricing model approach All of the above Build-up approach Discounted cash flow approach Debt cost plus risk premium approach Question 40.40. The corporate cost of capital is a blend (weighted average) of the costs of all of a business's financing sources. (Points : 1) True False