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The process for the cost of debt assumes the times interest earned is a good proxy...

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Finance

  1. The process for the cost of debt assumes the timesinterest earned is a good proxy for measuring credit risk, whatother financial variable if any should be considered? Does thisassumption limit the results? ( each time the level of debtchanges. Will this occur and does this limit the applicability ofyour results?
  2. The base level of interest rates, the risk free rate,changes over time. Is this important in calculating the optimallevel. Since the estimate is based on the current environment doesit matter if this changes?
  3. The beta may change over time, does keeping it constantlimit your results or is that an acceptableassumption?

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