Please refer to the curved line in figure 14.8 on page 499 and explain the reason for the following: The line initially has an upward slope, but gradually begins to slope downward as you move further out along the horizontal axis.

Chapter 14 Capita FIGURE 14.8 Effect of Financial Leverage on the Value of Bigbee's Stock Value of Bigbee's Stock Value Added by Debt Tax Shelter Benefits MM Result Incorporating the Effects of Corporate Taxation: Price of the Stock if There Were No Bankruptcy-Related Costs Value Reduced by Bankruptcy-Related Costs Actual Price of Stock Value of the Stock with Zero Debt = $20 Value of Stock if the Firm Used No Financial Leverage 1 0 D D2 Leverage, Debt/Ratio Threshold Debt Level Where Bankruptcy Costs Become Material Optimal Capital Structure: Marginal Tax Shelter Benefits = Marginal Bankruptcy-Related Costs