• 1. One assumption underlying Modigliani and Miller's theories of capital structure is that there is no difference between 'home$-$made' gearing and corporate gearing. Explain this assumption and discuss why it is needed to make the theories work. You need to work through a numerical example to demonstrate your answer.
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• $$$$2. Explain what is meant by the pecking$-$order theory and how it relates to the observed capital structures of companies.
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