6. Three statements are given in this question. For each of the following statements, indicate true or false. If the statement is true, justify your answer. Otherwise, write the right statement. If it is possible, you may utilize the relevant diagrams to justify your answers. (a) [2.5 points] If initial public offering (IPO) is successful, as initial order of number of shares are granted to each investor, he or she can fully exploit the return opportunity through successful IPO. (b) (2.5 points] The investors upholding the strong market efficiency believers that they can exploit the positive alpha investment opportunity only through the inside information of the company. (c) (2.5 points) According to the pecking order hypothesis, the following order of financing choice can be prioritized by managers: using retained earnings, issuing the debt, and issuing the equity. 5. [5 points] Company A wants to decide optimal level of debt (or optimal leverage) to maximize the value of the firm. The manager believes that the company can exploit the benefit of interest tax shield upto $30 million in debt. However, he also consider the possible financial distress cost when the amount of debt is increasing. Suppose the current corporate tax rate is 25%. Also it is assumed that the amount of the interest to be obligated to the debt holder is constant for on-going basis. The manager asks the advice from quantitative research analyst. The analyst suggests to use the present value of financial distress as following: PV(Financial distres) = (0.02/D if D