1. A firm has a pre-money valuation of $750,000 and the entrepreneur has 80% of the total equity. If $250,000 of new equity is issued for 25% of the business, which of the following is (are) true?

a. the post-money valuation is $1 million.

b. the entrepreneur's dollar value of equity decreases.

c. both a. and b. are true.

d. neither a. nor b. are true.

2. Actions taken by the entrepreneur to demonstrate commitment to the business lessens the possibility of

a. moral hazard.

b. adverse selection.

c. agency cost of debt.

d. obtaining financing.