Question 1 (20 marks) Capital Structurea. "An Investor will wish to invest in a company because of its capital Structure." Discuss this statement. (5 marks) b. The Following Information relates to two companies with the same Business Risk. There are no taxes. Item Centrix AlphaEarnings before interest ($) 18,500 18,500Mkt Value of debt $ 45,000 Kd (%) 2.5% Ke (%) 12% 13%Mkt Value of Equity $ 125,000 142,308Total Mkt Value $ 170,000 142,308 $ $ According to the theory of Modigliani and Miller (Proposition 1) the total market value of the two companies should be the same, irrespective of the methods used to finance their investments.Required: I. Suppose you hold 3% of the shares in Centrix. Show the process and the amount by which you could increase your income. (6 marks) II. Explain how the process you pursued in Part a. carries no risk. (4 marks) c. "It is obvious that companies should use as much debt as possible. It is cheaper than equity and the interest is tax deductible." Discuss this statement. (5 marks) Question 2 (20 marks)a. Devotion Ltd recorded an operating profit of $6 million in the last financial year. It has 2.8 million shares on issue and the market price of the shares is $7.50 each. Devotion Ltd announces that it will repurchase (buyback) 13% of each shareholder's shares at $7.50 per shares I. Calculate the company's P/E ratio before the buyback(4 marks) II. Theoretically, what should be the company's share price after the buyback? (4 marks) b. The payment of dividends is said to have a role in reducing agency costs. Explain the ways in which the payment of dividends can limit the extent of agency problems. (7 marks) c. The nature of investment opportunities available to a company will have a significant effect on the dividend policy the company uses. Discuss (5 marks) Question 3 (20 marks)a. "Risk and Return are unrelated." Discuss this statement. (5 marks) b. What are the 4 most important principles of Corporate Finance a Financial manager needs to know and apply and how will they know if they have been successful? Explain carefully. (15 marks) Question 4 (20 marks)a. What are the major differences between a Futures contract and an Options contract? (4 marks) b. Which contract is better for speculating – a Futures contract or an Options contract? (3 marks)