The capital structure is the mix of debt, preferred stock $($if there is any$),$ and common equity that is used to finance the firm$$s assets. The optimal capital structure is the capital structure that maximizes a

a$)$ Why does MM$$s theory with taxes lead to $100\%$ debt?

b$)$ Explain what asymmetric information means, and how signals affect capital structure decisions.

c$)$ What is meant by reserve borrowing capacity and why is it important to firms?

d$)$ What is the pecking order hypothesis, and how does it influence firm$$s capital structures? stock$$s intrinsic value.