Fairfield Learning is a retailer focused on education supplies. The company has a book value of $28.88 per share. Fairfield Learning has a PB ratio of 6.32 and the education supplies industry PB ratio is 5.31. Assuming that comparable industry companies are priced correctly the intrinsic value of Fairfield Learning's equity per share is:

Undervalued $26.57 per share

Overvalued $26.57 per share

Overvalued $29.17 per share

Priced correctly

2. Which of the following is(are) false regarding capital structure and debt?

I. At first, debt costs are small, but expected costs of debt increase as leverage rises.

II. The M&M Theory suggests that in a world with taxes, capital structure doesn't matter.

III. Firm value is maximized when D/E reaches about 35% to 45%, then begins to decline as leverage threatens the cash flow of the firm.

IV. In general, debt has a higher cost than equity for a corporation.

a. Only I and II are false

b. Only II and III are false

c. Only III and IV are false

d. Only II and IV are false

e. Only I and IV are false