2. (7 pt) (a) (4 pt) Does capital structure matter in the real world? Why? Briefly discuss the pros and cons for a company to adopt debt (in addition to equity) in its capital structure (b) (3 pt) Company ABC currently has the optimal capital structure un ter a 30% corporate tax rate. If the government suddenly lowers the corporate tax rate to 10%, does ABC still have the optimal capital structure? If yes, briefly explain why. If no, briefly discuss what ABC should do (increase/decrease debt) to reach the optimal capital structure under the new 10% corporate tax rate and your rationale. (a)Yes, VL = VU +T*D-FDC. VL increases initially as D increases, after a threshold, FDC outweighs T*D, and VL declines. The optimal capital structure is where VL is maximized