Question: In Section 19.3 we proposed a three-step procedure for calculating WACC at different debt ratios. The MilesEzzell formula can be used for the same purpose.

In Section 19.3 we proposed a three-step procedure for calculating WACC at different debt ratios. The Miles–Ezzell formula can be used for the same purpose. Set up a numerical example and use these two approaches to calculate how WACC changes with financial leverage. Assume T* = T_C. You will get slightly different numerical answers. Why?

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