CP

502 CHAPTER 13 Capital Structure Decisions

FIGURE 13-5 Effects of Capital Structure on Value, Cost of Capital,

Stock Price, and EPS

Stock Price

($)

EPS

($)

Price

EPS

0 10 20 30 40 50 60

Percent Financed with Debt

0

15

4

6

2

0

20

5

10

25

Cost of Capital

(%)

Cost of Equity

After-Tax

Cost of Debt

WACC

0 10 20 30 40 50 60

Percent Financed with Debt

5

0

15

10

20

Value of Firm

($)

0 10 20 30 40 50 60

Percent Financed with Debt

50,000

0

100,000

150,000

200,000

250,000

498 Capital Structure Decisions