The WACC formula assumes that debt is rebalanced to maintain a constant debt ratio D/V. Rebalancing ties
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The WACC formula assumes that debt is rebalanced to maintain a constant debt ratio D/V. Rebalancing ties the level of future interest tax shields to the future value of the company.
This makes the tax shields risky. Does that mean that fixed debt levels (no rebalancing)
are better for stockholders?
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