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.