Question: Graph (a) the relationships between capital costs and leverage as measured by D/V, and (b) the relationship between value and D. MINI CASE David Lyons,

Graph (a) the relationships between capital costs and leverage as measured by D/V, and (b) the relationship between value and D.

MINI CASE

David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies average about 30 percent debt, and Mr. Lyons wonders why they use so much more debt, and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant:

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