Question 1 40 pts (a) A company wants to issue debt instead of equity. (i) Under what circumstances would this be a prudent decision to make? (12 Marks) (ii) Explain using M&M's theories why this might not be so prudent after all. (8 Marks) (b) (1) Explain the three different forms of the efficient market hypothesis. (6 Marks) (ii) Explain the Random Walk Theory and identify what criticisms are made of this theory? (4 Marks) (ii) Explain using figure 1 below, why dual listed companies like Royal Dutch NV and Shell Transport and Trading Plc do not tend to trade at parity? Figure 1: Relative difference in Valuations of Royal Dutch Petroleum vs 'Shell' Transport and Trading Royal Dutch Petroleum vs Shell Transport and Trading -40 1973 1978 1983 1988 1993 1998 2003 Data shown from Jan 1, 1973. to Jan 24, 2005