You are employed in a graduate role with a fast growing company that has recently listed as a public company (PLC). Your Finance Manager has asked you to prepare an analysis of the academic theory relating to the idea that an optimal capital structure exists and so a company can maximise its value (minimise its WACC) through careful management of its financing decisions. Furthermore, you have just received an email from your Finance Manager advising you of a takeover bid that your company plans to submit for a rival, unlisted company. The Finance Manager suggests that more debt could be issued by your PLC and used to finance a cash offer for the business, as he has heard from a source close to the target company that a cash offer would have the best chance of success. You have been asked for your opinion on this suggestion. Required Write to the Finance Manager addressing the points that he has raised. Marks to be awarded as follows: (a) Discussion of the academic theory on capital structure and the relationship between capital structure and weighted average cost of capitai. (15 marks) (b) Discussion of the suggestion that a cash takeover bid could be financed by increasing the company's level of debt. (10 marks) (Total 25 marks) END OF PAPER