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Explain the static theory of capital structure using the graph below. Describe the meaning of each term (RU, RE, WACC, RDx(1-Tc), and D/E*) on the

Explain the static theory of capital structure using the graph below. Describe the meaning of each term (RU, RE, WACC*, RDx(1-Tc), and D*/E*) on the graph below.

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Cost of capital Re Ru WACC Minim um cost of capital (WACC*) Ro x (1-TC) Debt-equity ratio D/E Optmal debt- equity ratio

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