Question: 6. Capital Structure Decision [25 Marks] a) How does the existence of financial distress costs affect the MM theory in a world where corporations pay

6. Capital Structure Decision [25 Marks] a) How does the existence

6. Capital Structure Decision [25 Marks] a) How does the existence of financial distress costs affect the MM theory in a world where corporations pay taxes? Discuss using the Trade-off Theory and illustrate your discussion with the relevant graph and examples. [18 Marks] b) According to the Pecking Order Theory, explain why asymmetric information pushes companies to raise external funds by borrowing rather than by issuing common stock. [7 Marks]

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