Which of the following statements is true?

I) The main reason why Private Equity companies typically purchase businesses with large amounts of debt financing is because they are "cash constrained", that is, the number of deal opportunities they came across is typically significantly higher than the number of firms that they would be able to purchase if they solely used their own funds.

II) Say you want to find the cost of capital for a privately held company in the Widget manufacturing business. Moreover, assume that such company has very little leverage in its balance sheet, whereas all publicly traded companies in the Widget manufacturing business have non-negligible leverage. All else equal, if you forget to "unlever" the equity betas of the public companies and use their average "equity beta" to estimate your target company's unlevered cost of capital, you will UNDERESTIMATE the value of the privately held company.