- Now prepare a summary of the implications of capital structure theory which can be pre- sented to Steve Freeman. Consider specifically these issues: (a) Are the tax tradeoff and asymmetric information theories mutually exclusive? (b) Can capital structure theory be used to actually establish a firm's optimal capital structures with precision? If not, then what insights can capital structure theory provide managers regarding the factors which influence their firms' optimal capital structures? Steve Freeman also learned from Howser, who obtained his information from the firm's was approximately 15 percent. The investment bankers had indicated, though, that the firm could issue at least $10 million of long-term debt at a cost of 10 percent. Unless the company used a lot of debt, its bonds would be highly rated and would carry a low coupon because the firm cur In part because of Leonard Freeman's depression experience-he had observed that compa nies with high dividend payouts had rarely gone bankrupt-Seattle Steel has always followed a policy of paying out 100 percent of its earnings as dividends. In lieu of retaining earnings to rein- funding needs, but it also issued additional equity capital (80 percent of which is currently held by investment bankers, that the firm's cost of equity-hence its weighted average cost of capital quite rently has no long-term debt. members of the Freeman family) when its financing needs were exceptionally high. Steve Freeman has done some reading in the area of financial management, so he is vaguely familiar with some key terms and with the works of a few of the better known financial theorists. To gain additional insights into the capital structure issue, he asked Doug Howser to give him a brief. ing on the subject. Howser, in turn, asked his assistant to help him prepare a briefing report which the two of them would use in a meeting with Steve Freeman the following week. To begin, Howser and his assistant prepared the following list of questions, and the assistant must now draft answers to them prior to a meeting with Howser. Assume that you are Howser's assistant, and prepare answers to the questions. Think also about other relevant questions that Freeman might ask-he may not know much finance, but he is a very bright individual and has a reputation for asking the right ques. tions" and for making life difficult for subordinates who are not prepared to answer them. W Toqor blow me on two - Now prepare a summary of the implications of capital structure theory which can be pre- sented to Steve Freeman. Consider specifically these issues: (a) Are the tax tradeoff and asymmetric information theories mutually exclusive? (b) Can capital structure theory be used to actually establish a firm's optimal capital structures with precision? If not, then what insights can capital structure theory provide managers regarding the factors which influence their firms' optimal capital structures? Steve Freeman also learned from Howser, who obtained his information from the firm's was approximately 15 percent. The investment bankers had indicated, though, that the firm could issue at least $10 million of long-term debt at a cost of 10 percent. Unless the company used a lot of debt, its bonds would be highly rated and would carry a low coupon because the firm cur In part because of Leonard Freeman's depression experience-he had observed that compa nies with high dividend payouts had rarely gone bankrupt-Seattle Steel has always followed a policy of paying out 100 percent of its earnings as dividends. In lieu of retaining earnings to rein- funding needs, but it also issued additional equity capital (80 percent of which is currently held by investment bankers, that the firm's cost of equity-hence its weighted average cost of capital quite rently has no long-term debt. members of the Freeman family) when its financing needs were exceptionally high. Steve Freeman has done some reading in the area of financial management, so he is vaguely familiar with some key terms and with the works of a few of the better known financial theorists. To gain additional insights into the capital structure issue, he asked Doug Howser to give him a brief. ing on the subject. Howser, in turn, asked his assistant to help him prepare a briefing report which the two of them would use in a meeting with Steve Freeman the following week. To begin, Howser and his assistant prepared the following list of questions, and the assistant must now draft answers to them prior to a meeting with Howser. Assume that you are Howser's assistant, and prepare answers to the questions. Think also about other relevant questions that Freeman might ask-he may not know much finance, but he is a very bright individual and has a reputation for asking the right ques. tions" and for making life difficult for subordinates who are not prepared to answer them. W Toqor blow me on two