Question 2 [5 marks] A. Briefly explain the differences between the trade-off theory of capital structure and the pecking order theory of capital structure. B. Wildcat Corporation's management team is meeting to decide on a new corporate strategy. There are three strategies. When a strategy is failed, firm value is $5 million. However, when a strategy is successful, total firm value is shown below Strategy A B Probability of Success 95% 70% 50% Firm value if Success ($ million) 50 60 70 (1) (ii) Explain which strategy has the highest expected firm value Suppose that Wildcat has the debt with its value of $30 million and the management team will choose the strategy that leads to the highest expected equity value for Wildcat. Explain which strategy the management will choose What is the economic terminology that describes the situation as in (ii) and explain whether the situation in (ii) is consistent with the shareholder theory or the stakeholder theory? (iii)