12.Which one of the following statements is TRUE?

a. The optimal capital structure occurs when the weighted average cost of capital is minimized.

b. The signaling theory of capital structure says that managers will signal their intentions publicly before they make major capital structure changes.

c. The market timing theory of capital structure implies that managers will issue equity in a recession, when interest rates are low, and debt in a boom period, when interest rates are rising.

d. The pecking order theory of capital structure says that only the highest executives in the pecking order hierarchy will make capital structure decisions.

e. An agency problem occurs when someone working with you defies your specific instructions and you can't fire them because of their importance to the organization.

13.Which one of the following statements is TRUE?

a. Modigliani and Miller's model with taxes says that the value of a levered firm is the value of an unlevered firm minus the present value of the firm's interest expenses.

b. When bankruptcy occurs, the costs of financial distress are paid to the bondholders.

c. Firm value is maximized when the capital structure is chosen to minimize the costs of financial distress.

d. The signaling theory of capital structure says that issuing equity is a signal of a firm's good prospects because equity is so expensive to issue.

e. The market timing theory of capital structure says that managers will issue stock when they think stock prices are high.