In April 1997, Telstra, then a telecommunications company wholly owned by the Australian Government, announced a capital restructuring ahead of its proposed partial privatisation through a share market float during the second half of 1997. The capital restructuring involved payment of a special dividend of $3 billion to the government and the borrowing of $3 billion by Telstra. Its finance director reportedly said that the restructuring would lower the average cost of capital and enable greater financial flexibility. Similarly, one journalist noted that debt financing is cheaper than equity raising. His article also stated that debt interest payments are also tax deductible, while dividends are not. Critically evaluate these comments on the effects of,and reasons for, the restructurin