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Question(s) / Instruction(s):

Suppose you plotted a curve which showed a Firm Us WACC on the vertical axis and its debt ratio on the horizontal axis. Then you plotted a similar curve for Firm V. The curve for firm U resembled a shallow U, while that for Firm V resembled a sharp V. Both firms have debt ratios that cause their WACCs to be minimized. Other things held constant, it would be easier for Firm V than for Firm U to maintain a steady dividend in the face of varying investment opportunities and earnings from year to year.

A) True
B) False

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