Value creation often has been associated with the capital budgeting decision,

but perhaps it is not the only avenue for adding value to the firm. Capital

Structure may also matter. In light of this, examine the following:

(answer

parts of a, b, and c)

a.) Modigliani and Miller state that capital structure is irrelevant. Explain why they thought so.

b.) Describe in detail the trade-off theory of capital structure.

c.) Describe in detail the pecking order theory of capital structure.