1. Capital Structure and Firm Value
   1. Show graphically (in Debt-Value space) how firm value is affected by debt when
      1. there are no corporate taxes, corporate debt is riskless and there are no bankruptcy costs, ii) there are corporate taxes, but corporate debt is riskless and there are no bankruptcy costs, and iii) there are corporate taxes, but corporate debt is risky and there are bankruptcy costs.
   2. What do each of the scenarios above imply about an optimal capital structure?
   3. Which scenario is more realistic? Why?
   4. Under the scenario in iii, show graphically what happens to a) the cost of debt, b) the cost of equity, and c) weighted average cost of capital (WACC) as the firm adds more debt.
   5. What is the relationship between WACC and firm value and what does this imply about the optimal capital structure?