Question 1 (20 marks)
a) What is the Modiglian-Miller “Irrelevance Theorem of capital structure? (5 marks)
b) Differentiate between MM proposition I and MM proposition II (Use diagrams where necessary) (6 marks).
c) i) What is the implication of MM proposition I and II for working average cost of capital (WACC). (2 marks).
ii) Starting from the WACC in the case of MM proposition, derive the WACC for MM proposition II. (7 marks).
Question 2 (20 marks)
a) What is dividend policy? (3 marks)
b) Briefly discuss the three major theories on dividend policy. (12 marks)
c) How does tax affect dividend policy? (5 marks)
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