In using asymmetric information, it could be explained that businesses maintain a reserve borrowing capacity to take advantage of good investment opportunities and, at the same time, avoid having to issue stock at distressed prices that will discourage investors.

a. True

b. False

2. Investor-owned firms have the benefit of issuing lower-cost tax-exempt debt, while not-for-profit firms have the benefit of tax deductibility of interest payments.

a. True

b. False

3. The corporate cost of capital is not used as a rate of return on capital investment opportunities.

a. True

b. False