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A using the free cash flow valuation model show the only

Question:

a) Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.

The value of the capital structure is mainly impacted by its affect on value through its debt.

WACC: Weighted average cost of capital

FCF: Free cash flows

rs: Cost of stock

rd: Cost of debt

ws: Weight of stock

wd: Weight of debt

Brigham, E. F., & Ehrhardt, M. C. (2014). Financial management: Theory and practice (14th ed.). Mason, OH: South-Western.

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