1.Explain what capital structure theory or theories best describes the following situations with reasons.

A.A CEO decides to borrow $50000 in new debt, and the share prices rise dramatically. He then decides to sell half of his own personal shares, and when this is reported in the Wall Street Journal the share prices drop dramatically in value.

B.The corporate tax rate rises from 35% to 45%, and the XYZ Corporation decides to issue more debt. A year later, bankruptcy laws are changed to become much stricter and costlier. XYZ then decides to pay back half of their debt.

C.A CEO named Joe Bigwig is known for living large with very expensive cars and a huge mansion. Joe is seeking a large loan from a bank to finance some new projects for his corporation. However, the bank becomes concerned when they find out that he recently used company funds to buy a brand-new company jet and also schedules numerous business trips to Hawaii and stays in five star hotels. The bank tells Joe they will only agree to provide him the loan if he agrees to scale back on his personal expenses and agrees not to give himself or any other executives a raise until the loan is paid back.