Write true or false next to each statement.

1. _________If firms did not have limited liability, their asset risk would be increased.

1. _________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.

1. _________In a perfect capital market, minimizing the weighted average cost of capital is equivalent to maximizing the firm's value.

1. _________MM's proposition II assumes increased borrowing does not affect the interest rate on the firm's debt.

1. _________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.