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Pt. 1

Briefly discuss the following question, “Does a perfect capital market exist?”. Support your

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position with facts from the readings. Must be answered in 200 words not including references.

Pt. 2

Questions:

1. What type of capital structure should a firm choose and why? In you answer, be sure to

include capital structure fallacies and their effects on a firm’s decision. 150 words

2. Define and discuss MM Proposition I with its implications, and the roles of homemade

leverage and the Law of One Price in the development of the proposition. 150 words

3. What is leveraged recapitalization and what effects does it have on the value of equity?

150 words

4. Define the optimal fraction of debt and the growth rate of a firm. What is the relationship between the two? 150 words

Pt. 3

Responses to questions below should be 300 words, using APA format not including references.

1. Define the three conditions that make up a perfect capital market, and then compare and contrast the effects of perfect capital markets and imperfect capital markets on value. Can they create or destroy value? Explain in 300 words not including references.

2. Define EBIT and discuss why the optimal level of leverage from a tax-saving perspective is the level at which interest equals EBIT. Does this have a connection with under-leveraging corporations–both domestically and internationally? 300 words not including references.

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