Question $16(10$ points$)$

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External funds are more expensive because of information asymmetry.

a$)$ False. Internal funds are cheaper because they are already with the firm; external funds have to be raised through a sale.

b$)$ True. Information asymmetry means that sometimes investors, not knowing the true value of the firm or of the project will end up requiring a higher rate of return, which will then make the investment too costly$.$