5 - Discussion The supplemental materials describe the process of calculating WACC (PDF) and go on to apply the results to valuing a firm both...

6.5 - Discussion

The supplemental materials describe the process of calculating WACC (PDF) and go on to apply the results to valuing a firm both unlevered (no debt) and levered (debt). The levered firm is shown to be more valuable. Two identical firms (see the supplemental materials) and the firm with debt is more highly valued. Does this make sense? Why or Why not? Why not use 100 percent debt financing if debt increases value?