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Using VU from Problem 8, what are the values of the CCC and R(Re) at debt levels of D=$0, D=$6 million, and D=$10 million, assuming
Using VU from Problem 8, what are the values of the CCC and R(Re) at debt levels of D=$0, D=$6 million, and D=$10 million, assuming a 40 percent corporate tax rate? Using data from above, plot the relationships between:
- the debt ratio and the value of the firm
- the debt ratio and the costs of capital (CCC, R(Re), and R(Rd))
D V D/V R(Re) R(Rd)(1-T) CCC
$0
$6,000,000
$10,000,000
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