A5 5 5. Explain the static theory of capital structure using the following graph. Describe the meaning of each term (RU, RE, WACC*, RDx(1 – Tc), and D*/E*) presented on the graph. picture attached...


A5 5


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


picture attached



Cost of<br>capital<br>(%)<br>RE<br>Ru<br>WACC<br>Minimum cost of<br>capital (WACC*)<br>RD x (1 - Tc)<br>Debt-equity ratio<br>D*/E*<br>:<br>D/E<br>Optimal debt-<br>equity ratio<br>

Extracted text: Cost of capital (%) RE Ru WACC Minimum cost of capital (WACC*) RD x (1 - Tc) Debt-equity ratio D*/E* : D/E Optimal debt- equity ratio

Jun 11, 2022
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