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10.50%

4.80%

10.50%

$4,711

10%

11.00%

5.10%

10.41%

$4,807

20%

11.60%

5.40%

10.36%

$4,862

30%

12.30%

5.52%

10.27%

$4,970

7 In other words, the value of the firm might not be maximized at the point that cost of capital is minimized, if firm cash flows are much lower at that level.

40%

13.10%

5.70%

10.14%

$5,121

50%

14.00%

6.30%

10.15%

$5,108

60%

15.00%

7.20%

10.32%

$4,907

70%

16.10%

8.10%

10.50%

$4,711

80%

17.20%

9.00%

10.64%

$4,569

90%

18.40%

10.20%

11.02%

$4,223

100%

19.70%

11.40%

11.40%

$3,926

Note that the value of the firm = Cash flows to firm*(1+g)/ (WACC - g)

= $200 * 1.06 / (WACC - .06) The value of the firm increases (decreases) as the WACC decreases (increases), as illustrated in Figure 8.2.

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