The Weighted Average Cost of Capital Is Invariant to the Use

question 57

Essay

The weighted average cost of capital is invariant to the use of leverage under MM conditions of no taxes. Graph the relationship of the weighted average cost of capital and leverage; be sure to include the cost of equity and debt. Explain why this relationship holds.

---

Definitions:

Repression

A defense mechanism where unpleasant thoughts, memories, or desires are kept out of conscious awareness.

Oedipus Complex

A psychoanalytic theory introduced by Sigmund Freud, which suggests that a child has unconscious sexual desires for their opposite-sex parent and hostility toward the same-sex parent.

Conscience

An inner feeling or voice viewed as acting as a guide to the rightness or wrongness of one's behavior.

Defense Mechanisms

Psychological strategies brought into play by individuals to cope with reality and maintain self-image.