Corporate finance theory and practice

Q6. a) In the real business world, what are the benefits of using debt capital to a firm (please

name at least 2 benefits)? [40 Marks]

Q6. b) In the real business world, what are the costs of using debt capital to a firm (please

name at least 2 costs)? [40 Marks]

Q6. c) Please discuss how a firm’s cost of capital will change with its debt ratio generally and

why. [20 Marks]

Note 1. For questions requiring calculation, answers without appropriate reasonings

or supporting calculation or will get ZERO.

Note 2. Keep only TWO digits in all calculation steps.