Question: Question 7 (12 Marks) Identify the relevant changes resulting from the following independent scenarios. Focus on capitalstructure effects only and ignore any other indirect effects

Question 7 (12 Marks) Identify the relevant changes resulting from the following independent scenarios. Focus on capitalstructure effects only and ignore any other indirect effects on the business. Use the following symbols only: = increase = decrease = no change Do not leave any blank cells. Blank cells will not be marked. Weight Cost of Weight Cost of of debt debt of equity equity Firm X takes out a loan to repurchase shares. Assume the existence of corporate tax, but no information or transaction costs Firm Y issues shares to repay debt. Assume that all Modigliani and Miller assumptions hold. The corporate tax rate suddenly decreasesby a material amount. Assume no information or transaction costs. Considerthe resulting capital structure effects only. Firm Z has a level of debt that is consistentwith its target debt-to-equity ratio. Assuming taxes and information and transaction costs exist, what is the effect ofan increase in debt? Management of Firm XYZ have rejected a positive NPV project due to the great deal of effort involved in its operation. Firm ABC is experiencing financial distress. Management has rejected a project with an NPV that is positive but which they believe is not sufficient to make debt repayments

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