QUESTION 2 (10 marks) VL = Vu+Tc XD | = TC VL = 67,300 TC XD Value of the firm, VL (E) Vu = 67,000 Vu Vu C1,000 Total debt, D (E) VU = Value of an unlevered Firm VL = Value of a levered Firm TC x D= Present value of interest tax shield REQUIRED: 2.1 Identify and explain the Modigliani and Miller proposition depicted in the diagram above. (3) 2.2 Explain the concept of optimal capital structure in relation to the diagram depicted above. (3) 2.3 Briefly explain the implications of Modigliani and Miller proposition II on the cost of equity capital. (4)