Question 11Capital Structure L* Based on the capital structure graph shown in th

Question

Question 11Capital Structure L* Based on the capital structure graph shown in the A. The horizontal line labeled A represents M&M;'s Irrelevance Theorem without taxes. B. VU on the Y-axis represents the value of an under-leveraged firm. C. The positively sloped straight line labeled B indicates that the firm value will keep rising as more leverage is employed (ie, as the firm uses more and more debt). D. The curve labeled C indicates that the firm's value will decrease once it passes the optimal leverage (L*) bupiy c coffithe ten advantage of debt.

Explanation / Answer

B. Vu on the Y axis represents the value of an underleveraged firm

it is actually the value of an unleveraged firm

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