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5. Explain the static theory of capital structure using the graph below. Describe the meaning...

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5. Explain the static theory of capital structure using the graph below. Describe the meaning of each term (Ru, RE, WACC*, Rox(1-Tc), and D*/E*) on the graph below. (7 marks) Cost of capital (%) Minimum cost of capital (WACC) WACC Rox (1 - T) Debt-equity ratio D*/E* D/E Optimal debt equity ratio

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