Which of these statements are true? 1) So long as the company doesn't perceive the potential risk of going bankrupt to go up an incentive to borrow still exists due to tax shield. 2) The agency costs of debt increase as a function of the level of debt whereas the agency cost of external equity increases as the percentage of financing supplied by external equity goes up. 3) When the company's equity is over-valued, the company doesn't have any incentive to issue its shares. 4) If the capital market is perfect, firms should raise debt as much as they can. a) 2,4 b) 1,2,3 c) 1,2,4 d) 4 only Question 6 Suppose you do not own a share. How would you use options to insure against a fall in the value of a share? a) Buy a call and lend at the risk free b) Buy a share and a put c) Buy a put and a call d) Buy a call and borrow at risk free