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fm17 8 - growth is included The cost of capital when growth...

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Answers and Solutions: 17 - 8 d. V L is greater under the extension that incorporates growth than under MM because MM assumes 0 growth. A positive growth rate gives a larger value to the tax shield. In this case the value of the tax shield under MM is 2.0 million and is $3.5 million if
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Unformatted text preview: growth is included. The cost of capital when growth is included is higher because the relative weight of equity is higher and the relative weight of debt is lower than when growth is ignored....
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