Static Trade Off Theory

[badger2014]

As the proportion of debt increases when there are taxes and costs of financial distress, the after-tax cost of debt increases.
Does the after-tax cost of debt fall and then rise OR the value of the firm initially rise and then fall. Seems like both would occur according to this theory?

 

[darshanP]

badger2014 wrote:
As the proportion of debt increases when there are taxes and costs of financial distress, the after-tax cost of debt increases.
Does the after-tax cost of debt fall and then rise OR the value of the firm initially rise and then fall. Seems like both would occur according to this theory?

Just look at the Graph