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Chapter 7






                          Overview






                                                  Impact of capital


                                                structure on WACC







                                                        CAPITAL

                                                     STRUCTURE
                                                      (GEARING)





                                         Traditional

                                              view






                                                           Modigliani and Miller

                         Optimal gearing
                            (U shaped

                              WACC)




                                                      1958 – no tax              1963 – with

                                                          theory                  tax theory










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