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Zubir's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4

  1. Zubir's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for RM40 a share. The Malaysian Treasury bill is yielding 4% and the market risk premium is 8%. Zubir's tax rate is 35%. What is Zubir's weighted average cost of capital?

  1. Explain what capital structure is and why managers should set the firm's capital structure.

v. Briefly explain Modigliani and Miller (MM) Proposition I without taxes.

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