1.Cost-benefit analysis of debt indicates that firms should chose a debt level which minimise itscost and maximises it benefits and ultimately enhances shareholders’ wealth. Critically analyse and evaluate the:a.Benefits of debts. 4 Marksb.Costs of debts. 4 Marksc.Does optimal debt level maximise firm’s value? 2 Marks
2.Despite the empirical significance of MM theorems; firms exhibit preferences in selecting debtand equity as a source of their capital. Using any one of the following theories explain how firms makes this decision.
a.Pecking order theory.
b.Trade off-theory.
