Write true or false next to each statement. 1. _________If firms did not have limited liability, their asset risk would be increased. 2. _________As long as the firm is certain that the return on assets will be higher than the interest rate, an issue of debt makes the shareholders better off. 3. _________In a perfect capital market, minimizing the weighted average cost of capital is equivalent to maximizing the firm's value. 4. _________MM's proposition II assumes increased borrowing does not affect the interest rate on the firm's debt. 5. _________Shareholders demand and deserve higher expected rates of return than bondholders do. Therefore, debt is the cheaper capital source. We can reduce the WACC by borrowing more. The Alto Horns Corp. is planning on introducing a new line of saxophones. It expects sales to be $200,000 with total fixed and variable costs representing 70 percent of sales. The discount rate on the unlevered equity is 17 percent, but the firm plans to raise $77,820 of the initial $150,000 investment as 9 percent perpetual debt. The corporate tax rate is 34 percent, and the target debt to value ratio is .3. Calculate the all-equity NPV and the levered NPV using the flow-to-equity