Question: Please can you answer this question with all workings 5. Capital Structure Decision [25 Marks] 1} Mayou plc currently has no debt in its capiml

Please can you answer this question with all workings

5. Capital Structure Decision [25 Marks] 1} Mayou plc currently has no debt in its capiml structure. The company has outstanding 20 million shares with a market price of $8 per share. It now decides to issue $120 million of new debt to repurchase its shares. Assume there are no corporate mites. Answer the following questions using the Modigliani-Miller (1958} theory. a) How is the market price of the stock affected by the announcement? How many shares can the company buy back with the $120 million of new debt that it issues? [2 Marks] b) Calculate the market value of the equity and the ratio of debt to equity after the change in capital structure. [2 Marks] c) Who (if anyone} gains or loses? Briey explain your answer. [3 Marks] 2} Use the pie model to briey explain why capital structure should not influence the firm value in a MM world without taxes. List three assumptions that lie behind the Modigliani-Miller (1958] theory and discuss whether they are reasonable in the real world. [3 Marks] 3} How do corporate taxes modify the ModiglianiMiller (1958) theory without corporate taxes? Illustrate your answer with a relevant formula and a graph [lGMarks]

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