1.True False History, expert opinion, and government mandates are three methods for developing probability estimates.

1. True False Flotation costs are the costs associated with retiring an old issue of debt or equity, such as the fees paid to investment bankers for handling the sale.

1. True False The mean-variance capital asset pricing model approach differs from the constant growth dividend valuation model and the earnings yield model in that it focuses on market returns for investments of similar risk rather than on investor response to a particular security.

2. True False If markets are perfectly efficient, the market values of debt and equity will equal present values of the expected cash flows for each of these sources of funding.

3. True False For capital budgeting, we use projected cash flows, not income statement numbers so deferred taxes are a major source of funding and needs to be considered in calculating the weighted average cost of capital.

4. True False When short-term debt is used as permanent financing and it is clearly part of the company's permanent capital in substance, then it should be treated like other long-term debt in cost of capital analysis.

5. True False Accounts payable and accrued expenses are a major source of funding that have explicit cost and therefore need to be considered in calculating the weighted average cost of capital .

6. True False In the absence of market imperfections, the capital structure that maximizes the value of the firm will also be the capital structure that minimized the weighted average cost of capital.

7. True False In reality (not a perfect market) risk, firm value, and the attractiveness of capital investments will likely be affected by capital structure decisions.