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Corporate IssuersModule 6 of 7

Capital Structure

6

Concepts

4

Formulas

1

Decisions

4

Quiz Questions

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Key Concepts

6 concepts covered in this module.

WACC

Weighted average cost of capital = wdrd(1-t) + were. Blended cost of debt and equity financing.

MM Proposition I (no taxes)

Capital structure is irrelevant to firm value in perfect markets. VL = VU.

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Formulas

4 essential formulas for this module.

WACC

WACC = wd × rd × (1-t) + we × re

Where: w = weight, rd = cost of debt, re = cost of equity, t = tax rate

MM Prop I (with taxes)

VL = VU + t × D

Where: Tax shield increases levered firm value

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Decision Frameworks

1 decision frameworks to guide your analysis.

More debt or more equity?

  • More debt: stable cash flows, high tax rate, low financial distress costs (e.g., utilities)
  • More equity: volatile cash flows, high growth, significant intangible assets (e.g., tech)

Mind Map

Visual overview of how concepts connect in this module.

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WACC

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Answer
Weighted average cost of capital = wdrd(1-t) + were. Blended cost of debt and equity financing.
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