QUESTION 4 (10 marks) (a) A profitable company operates in an MM perfect world (no taxes). If the company increased its debt ratio, would each of the following increase, decrease or stay the same? Type the correct answer for each into the table below. No discussion is required. (3 marks) Firm value WACC Cost of equity (b) If, instead, MM model with corporate taxes applied in part (a), would each of the following increase, decrease or stay the same? Type the correct answer for each into the table below. No discussion is required. (3 marks) Firm value WACC Cost of equity (c) Two companies operate in the same industry under the same tax laws and have similar assets and investment opportunities but their ownership concentration differs. Their debt ratios also differ. What theory explains this difference in capital structure and how? (4 marks) Answer part (c)