1. Which of the following statements is true?

A. Financial theorists have resolved the issue of how to maximize firm value by altering the capital structure.

B.  highly leveraged firm has less flexibility to take advantage of investment opportunities than companies with low debt ratios.

C. Firms with a high degree of operating leverage usually maintain high debt ratios.

D. A firm's longminus−term earnings are more important than its nearminus−term cash flows in determining the amount of debt to issue.

E. Firms increase their debt usage when markets overvalue the firm.

2. Which of the following statements regarding loanable funds theory is CORRECT?

a. As interest rates rise, the quantity of loanable funds supplied will increase.

b. As the quantity of loanable funds supplied increases, interest rates will rise.

c. As the quantity of loanable funds demanded increases, interest rates will fall.

d. As interest rates rise, the quantity of loanable funds demanded will increase.