Scenario 1

Back in 1958, Modigliani and Miller (M&M) suggest that the value of a firm is independent of its capital structure (its debt/equity ratio). Since then, the optimal balance between debt and equity financing has been a central issue in corporate finance.

You are required to:

Task 1

Discuss the extent to which capital structure decisions can affect the value of a firm. (500 words)

Task 2

Discuss the different theories on capital structure and evaluate the extent to which these theories are supported empirically. (500 words)