Conclusion

Figure 17.5 summarizes our discussion concerning the relationship between the cost of equity, the aftertax cost of debt, and the weighted average cost of capital. For reference, we have included RU, the unlevered cost of capital. In Figure 17.5, we have the debt-equity ratio on the horizontal axis. Notice how the WACC declines as the debt-equity ratio grows. This illustrates again that the more debt the firm uses, the lower is its WACC. Table 17.6 summarizes the key results of our analysis of the M&M propositions for future reference.

0 0

Post a comment