Question: QUESTION 3 (25 marks) (a) Discuss the difference in time required to analyses the capital structure of a firm, if it follows the MM with

QUESTION 3 (25 marks)

(a) Discuss the difference in time required to analyses the capital structure of a firm, if it follows the MM with taxes, MM without taxes or the static theory. Explain how does the of a capital structure based on the theories mentioned earlier would affect a companys value and cost. Provide example to explain your answer. (15 marks)

(b) Company ABC has an unlevered capital structure with a cost of equity capital of 12%. Compute ABCs new cost of equity be if its debt-equity ratio became 2, and its expected cost of debt is 8%. (10 marks)

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