Question: Question 2 (a) Explain clearly how, if certain assumptions are made, a firm's capital structure is irrelevant to its value. (8 marks) (b) Explain how

Question 2 (a) Explain clearly how, if certain assumptions are made,

Question 2 (a) Explain clearly how, if certain assumptions are made, a firm's capital structure is irrelevant to its value. (8 marks) (b) Explain how an optimal capital structure for the firm arises when both corporate taxes and bankruptcy costs exist. (8 marks) (c) Explain how agency costs are associated with outside equity in the analysis of Jensen and Meckling (1976). How might issuing debt help to overcome the problem? (9 marks)

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