1. A valuable firm will tend to:

reduce its debt level as a positive signal for the firm.

issue more debt than a less valuable firm of comparable size.

issue debt, but only on a temporary basis purely to fool investors regarding the firm's value.

see its stock price increase if it issues debt beyond its optimal debt level.

see its stock price increase when it announces an exchange offer that decreases its leverage.

2. The explicit and implicit costs associated with corporate default are referred to as the _____ costs of a firm.

default beta

direct bankruptcy

financial distress

flotation

indirect bankruptcy