Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 333

Disney: Cost of Capital Chart

The cost of capital is minimized at 30% but notes that the cost of capital does

not rise smoothly. In fact, there are times when you will see a kink in the cost of

capital graph, largely because the cost of debt changes discontinuously,

changing only when the rating changes.

We can make the cost of debt a continuous function of default risk or interest

coverage ratios.