Draw the Following Two Graphs, One Above the in the Top

question 248

Essay

Draw the following two graphs, one above the In the top graph, plot firm value on the vertical axis and total debt on the horizontal. Use the graph to illustrate the value of a firm under M&M without taxes, M&M with taxes, and the static theory of capital structure. On the lower graph, plot the WACC on the vertical axis and the debt/equity ratio on the horizontal axis. Use the graph to illustrate the value of the firm's WACC under M&M without taxes, M&M with taxes, and the static theory. Briefly explain what the two graphs tell us about firm value and its cost of capital under the three different theories.

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