Consider a Modigliani Miller world (one with no market imperfections) a. Explain why, under these conditions, capital structure is not relevant to firm value. b. Explain why under these conditions when a firm issues debt, even if debt that is risk free (no chance of default), the required rate of return on equity rises. c. Now allow for corporate taxes (but no transaction costs). Explain why this situation would drive value-maximizing managers to want to use as large amounts of debt, but not necessarily use 99.99% debt. d. Now, allow for transaction costs, such as bankruptcy. How will this affect the value-maximizing managers choice of an optimal capital structure? e. Given these trade-offs, which kind of value-maximizing firm would be likely to have a larger percentage of debt in its capital structure, a trucking (long haul delivery) firm or an internet retail firm? Explain why.