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1) Ellen Kauer, senior at UMB College of Management, has been registered for financial management course and sought help from a tutor. In their conversations about business risk and optimal capital structure of the firm, the tutor made following statement: The major factors which affect business risk are ability to adjust output prices and operating leverage and business risk is uncertainty regarding the net income of a firm. For the levered firm 40/60 debt to equity ratio is optimal capital structure that always maximizes value of a firm. Do you agree or disagree with tutor’s statement? Briefly describe in detail.

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