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(xx) The merger of two companies in the same industry that make products required at different stages of the production cycle is called.. ABCD (1 mark) (xxi) Which of the following statements concerning capital structure theory is correct? A In the traditional view, there is a linear relationship between the cost of equity and financial risk B C D economies of scope. vertical integration. economies of scale. horizontal integration. C D Modigliani and Miller said that, in the absence of tax, the cost of equity would remain constant (xxii) Why does the term (1-t) appear in the WACC formula? A The value of the company is taxable. Tax and inflation are related. B Pecking order theory indicates that preference shares are preferred to convertible debt as a source of finance Business risk is assumed to be constant as the capital structure changes (1 mark) The interest paid on debt is tax deductible. All equity is taxed. (xxiii) Y Corporation needs to raise capital to purchase new equipment for its research laboratory. Use the following information to compute the WACC for Y Corporation. Equity financing = $200,000 Cost of equity = 10% Debt financing= $400,000 Cost of debt = 5% Tax rate= 30% (1 mark) A 5.0% B 5.6% C 7.5% D 10.0%