1. What is meant by capitalization? What is meant by a firms capital structure? For financial planning purposes, explain why either book or market value should be used to determine the firms capital structure. What is capital structure theory?
2. Discuss the following issues relating to business risk and financial risk.

1. What is the difference between business risk and financial risk? Explain some of the factors that contribute to each. Evaluate Moore Plumbing Supplys level of business risk.
2. How do these risks relate to total risk?

2. 3. How does business risk affect capital structure decisions?
3. Discuss the following issues relating to Modigliani and Millers (MM) 1958 capital structure model.
   1. What was the importance of the model?
   2. What are the basic assumptions of the model?

4. Discuss MMs later models (1963) in which they relaxed the no-tax assumption and added corporate taxes. Discuss Proposition I and II. Miller added personal taxes to the model in his 1976 Presidential Address to the American Finance Association. What happens to Millers model, in general, if there are no corporate or personal taxes? What happens when only corporate taxes exist?

5. Briefly describe the asymmetric information theory of capital structure. What are its implications for financial managers?

6. Prepare a summary of the implications of capital structure theory that can be presented to Tom Moore. What insights can capital structure theory provide managers regarding the factors which influence their firms optimal capital structures?

7. Finally, what recommendations would you make about the capital structure of Moore Plumbing Supply Company? Justify your answer.