1.Which of the following statements is false? Explain why.

A.the imperfections in the CAPM may be critical in the context of capital budgeting and corporate finance, where errors in estimating the cost of capital are likely to be far more important than small discrepancies in the project cash flows.

B to estimate the expected market risk premium we can look at the historical average excess return of the market over the risk free interest rate.

C the highest beta stocks have tended to under perform what the CAPM predicts

D given an assessment of an index's future cash flows, we can estimate the expected return of the market by solving for the discount rate that is consistent with the current level of the index.

2.Which of the following statement is false? Explain why

A. the relative proportions of debt, equity and other securities that a firm has outstanding constitute its capital structure

B.the most common choices are financing through equity alone and financing through a combination of debt and equity

C. The projects NPV represnts the value to the new investors of the firm created by the project

D.When corporations raise funds from outside investors, they must choose which type of security to issue