Capital Structure
Free CFA Level I lesson in Corporate Issuers. 13 min read, ~2,007 words.
WACC = (E/V)·rₑ + (D/V)·r_d·(1−t) + (P/V)·r_p. Market values, after-tax cost of debt. MM I no taxes: capital structure is irrelevant. MM II no taxes: cost of equity rises linearly with D/E, WACC flat. MM with taxes: V_L = V_U + t·D. WACC declines monotonically with leverage. Trade-off theory: optimal...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- capital structure
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