Modigliani and Miller developed a theory describing a firm’s optimal
capital structure, ranging from a basic model assuming no corporate
taxes, to an intermediate model including corporate taxes, and
ultimately a model providing for costs of financial distress.
Describe in detail the optimal capital structure for a company in each of the following
circumstances, and sketch appropriate diagrams where needed:
i) No corporate tax Refer lecture slides Topic 9
ii) Corporate tax Refer lecture slides Topic 9
iii) Corporate tax and costs of financial distress. Refer lecture slides Topic
9