1. A type of financing that involves one corporation borrowing from another non-financial corporation is called:

a) commercial paper

b) preferred sharing

c) an operating lease

d) a short term line of credit

2. Past the point where the optimal capital structure exists, adding debt to the capital structure:

a) results in higher interest rates for the firm, and higher leverage. The higher leverage results in a riskier firm with a higher cost of equity.

b) Reduces the firms cost of equity

c) violates SEC regulations if the excess debt is considered permanent.

d) results in the excess debt's interest not being tax deductible