2.2 Optimal Leverage Analysis (max. 6 pages, 25 marks)
• You should discuss the implications of the various capital structure theories for optimal capital structure as they apply to your assigned company including:
o Trade-off theory
• The trade-off between tax benefits of debt (including personal taxes and dividend imputation credits (see Topic 8)) and the financial distress costs.
• Analysis of tax benefits should be detailed.
• The implications of the trade-off theory determinants (see Topic 6) of optimal leverage for the optimal leverage of the firm.
• Analyses of the determinants should be both qualitative and quantitative.
• You may incorporate stakeholder theory, agency theory and predation theory (see Topic 7) along the trade-off theory determinants mentioned above in a broader trade-off theory framework.
• The analyses of the broader trade-off theory determinants should be detailed and should form the bulk of your analyses of optimal leverage.
• You should have a separate sub-section for each determinant.
o Agency theory
o Stakeholder theory
• You should determine the optimal leverage or optimal leverage range of the firm and whether the firm should increase, decrease or maintain its current leverage.
• You should also suggest how and when any recommended leverage change should be implemented.
company name- seven group holdings