1. Briefly list and explain the costs and benefits of debt discussed in the lectures. What is the implication for optimal capital structure? Present a graphical illustration for different capital structure theories (firm value on the y-axis and debt or leverage on the x- axis). Start with perfect capital markets and gradually allow for market imperfections. 2. Suppose you need to explain the tradeoff theory to a friend. Prepare your own numerical illustration of an all equity firm planning on a leveraged recapitalization (you cannot use examples identical to those in the book and lectures). Start with perfect capital markets and then gradually allow for corporate taxes and financial distress costs