Question: Explain the static theory of capital structure using the graph below. Describe 5. the meaning of each term (Ru, RE, WACC*, Rax(1-Te), and D*/E*) on

Explain the static theory of capital structure using the graph below.

Explain the static theory of capital structure using the graph below. Describe 5. the meaning of each term (Ru, RE, WACC*, Rax(1-Te), and D*/E*) on the graph below. (7 marks) Cost of capital %) Re Ry WACC Minim um cost of Ro x (1 Tc) capital (WACC) Debt-equity ratio D*/E D/E Optimal debt- equity ratio

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