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1. A type of agency problem that results in shareholders gaining from decisions that increase the risk of the firm sufficienty even if they have negative NPV is: OA. debt overhang. OB. underinvestment. O C. asset substitution. O D. cashing out. 2. Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists? O A. The number of issues is highly cyclical OB. The long-run performance of a newly public company (three to five years from the date of O C. O D. issue) is superior to the overall market return. On average, IPOs appear to be underpriced. The costs of the IPO are very high, and it is unclear why firms willingly incur such high costs. 3. Which of the following statements is FALSE? O A. To compare investor preferences, we must quantify the combined effects of dividend and capital gains taxes to determine an effective dividend tax rate for an investor O B. Individuals in the highest tax brackets have a preference for stocks that pay high dividends, whereas tax-free investors and corporations have a preference for stocks with no or low dividends O C. Differences in tax preferences create clientele effects, in which the dividend policy of a firm is optimized for the tax preference of its investor clientele. e theory states that absent transaction costs, investors can trade shares at the time of the dividend so that non-taxed investors receive the dividend