a. Capital structure refers to the financial structure of a firm. It is the mix of debt and equity capital maintained by a firm. The capital structure of a firm is very important since it relates to the ability of the firm to meet the needs of its stakeholders. Modigliani and Miller (1958) were the first to discuss the topic of capital structure and they argued that capital structure was irrelevant in determining the firm's value and its future performance. On the other hand, Lubatkin and Chatterjee (1994) as well as many other studies have proved that there exists a relationship between capital structure and firm value. Required: Discuss TWO (2) factors that a company should consider, in its circumstances, in choosing between equity finance and debt finance as a source of finance. (10 Marks) b. Suria Motors Bhd. is an all-equity firm (i.e. no debt) with 200,000 shares outstanding. The company's EBIT is RM2,000,000, and EBIT is expected to remain constant over time (i.e. \g=0 ). The company pays out all of its earnings each year as dividend, so its earnings Required: i. What is the company Current Cost of Capital (CAPM), Dividend Per Share and Stock Price? (5 Marks) ii. Using the price of share calculated in (i), how much shares will be repurchased by the amount of debt issued? (2 Marks) iii. What is the company Cost of Capital (CAPM), Dividend Per Share (for the remaining number of shares) and Stock Price AFTER Recapitalization? (7 Marks) iv. Should Suria Motor Bhd. proceed with the recapitalization? (1 Mark)