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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Principles Of Corporate Finance

ISBN: 9780077398040

10th Edition

Authors: Richard Brealey

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Question Posted: Jul 31, 2024 04:00 AM

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The WACC formula assumes that debt is rebalanced to maintain a constant debt ratio D/V. Rebalancing ties

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Principles Of Corporate Finance

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