1 The inside information problem might not result in a higher cost of equity if A investors are overly pessimistic C investors are overly optimistic the firm's management is known to be overly pessimistic D 2 If a firm uses less debt in its capital structure than is optimal, then A B C D there will be less free cash flow for managers to invest in positive NPV projects all of them its investors will pay more in personal income taxes than is necessary the firm will pay more in corporate income taxes than is necessary The best method to use to value a firm under a given capital structure when num imperfections (e.g., agency issues, personal taxes, and transaction costs) exist is t A flow-to-equity method B adjusted present value (APV) method C KISS method D weighted average cost of capital (WACc) method 4 Which of the following statements is true? When calculating the WACC, the promised, after -tax return on debt should When using CAPM to estimate a WACC, you should use the relevant, after and the after-tax expected return on the market, taking both corporate and rates into account When using CAPM to estimate a WACC, the expected return on the market A 8 be the expected return on a stock market index (e.g., the S&P 500 Index) w the cost of equity capital, and it should be the expected return on a bond m when calculating the cost of debt capital When using CAPM to estimate a WACC, personal taxes are not deducted si corporation must compensate investors for the extra tax obligations they