27. WACC and Rebalancing (S18-4) The WACC formula assumes that debt is rebalanced to maintain a constant

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27. WACC and Rebalancing (S18-4) 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: 9781264080946

14th Edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans

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