Figure shows that r D increases as the debt?equity ratio increases. In MM?s world r E also
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Figure shows that rD increases as the debt?equity ratio increases. In MM?s world rE also increases but at a declining rate. Explain why.
Redraw Figure, showing how rD and change for increasingly high debt?equity ratios. Can rD ever be higher than? Can rE decline beyond a certain debt?equity ratio?
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Rates of return -rE (MM) TE (traditional) -rA (MM) TA (traditional) debt equity Traditionalists believe there is an optimal debt-equity ratio that minimizes rA alw
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a As the debtequity ratio increases both the cost of debt capital and the cost o...View the full answer
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Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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