| Course | MT217 Finance |
|---|---|
| Unit | Unit 9 |
| Paper type | Seminar reflection |
| Length | About 800 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT217 Unit 9
Cheap Debt Was Not Free: A Unit 9 Seminar Reflection on the Cost of Capital
[Student Name]
Purdue University Global
MT217: Finance
Unit 9 Seminar Reflection
[Instructor Name]
[Date]
The flooring distributor and every figure are composite and illustrative; the sources cited are real.
What I Believed Going In
Before the seminar I thought the answer to financing was simple. Debt is cheaper than equity, interest is tax deductible, and so a company should borrow as much as a lender allows. I had worked the numbers for our case company and they seemed to prove it.
The Seminar's Figures
The case was Durango Floor Supply, a composite distributor of carpet, tile and vinyl plank to contractors and retailers. It borrows at 7.2 percent, which is 5.40 percent after its 25 percent tax rate. Its equity costs 11.55 percent, from a 4.3 percent risk-free rate plus a beta of 1.25 times a 5.8 percent market premium.
My first calculation held those two costs fixed and changed only the mix. At 30 percent debt, the weighted average cost of capital was 0.30 times 5.40 plus 0.70 times 11.55, or 9.70 percent. At 60 percent debt it fell to 7.86 percent. Every step toward more debt lowered the cost, which is what I expected. I even showed the result to my manager at work, a flooring installer who buys from a distributor much like Durango, and said it explained why his supplier kept borrowing.
What Changed
The instructor then asked a question I had not considered: would lenders and shareholders really accept the same rates at 60 percent debt as at 30? A classmate who works in commercial lending answered first. She said her bank would charge a borrower like Durango about a point more at 45 percent debt and two points more at 60, and would add covenants limiting dividends.
The instructor reran the figures with costs that responded to the debt level. At 45 percent debt, with borrowing at 7.8 percent and equity at 12.8 percent, the blend came to 9.67 percent, barely below the 30 percent figure. At 60 percent debt, with borrowing at 9.2 percent and equity at 15.2, it rose to 10.22 percent, higher than where it started.
The shape surprised me, and the reason took a few minutes to sink in. Instead of a line sloping steadily down, the cost fell slightly, flattened and then climbed. Shareholders demand more as debt rises because their claims come after the lenders' and their returns swing more widely, and lenders charge more as the chance of default grows. Beyond some point, those increases outweigh the tax advantage of interest.
Debt was cheaper than equity at every level, and the blend still got more expensive.
What the Readings Added
Myers (1984) described two ways of thinking about this. In the trade-off view, a company balances the tax benefit of debt against the expected cost of financial distress and aims for a target mix. In the pecking order view, a company spends retained cash before it borrows and turns to a share sale last, because outside investors read a share sale as a sign that managers think the stock is overpriced. The seminar's curve is the trade-off view in numbers.
In the Graham and Harvey (2001) survey of corporate finance officers, and many said they keep to a target ratio and that financial flexibility and credit ratings weigh heavily in their decisions. That matches what the classmate said about her bank: the covenants that come with heavy debt limit what a company can do in a downturn, a cost that never shows up in the interest rate.
Brigham and Houston (2019) present the optimal capital structure as the mix that minimizes the weighted average cost of capital, and the seminar showed that the minimum for Durango sits somewhere near 40 to 45 percent debt, not at 60.
What I Now Think
I still think debt is cheaper than equity, but I no longer think more debt always makes a company cheaper to finance. The useful question is where the blended cost bottoms out, and that depends on how lenders and shareholders react, which my first calculation assumed away. I had treated two prices as fixed when both are set by people deciding how much risk they will carry.
For Durango, I would recommend keeping debt near 40 percent of capital and testing that target each year against what its bank actually quotes, which captures most of the tax benefit while leaving room to borrow in a bad year. Going into Unit 10, I want to know whether a single project that is riskier than the company as a whole should be judged at the company's blended rate or at a higher one.
References
Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management (15th ed.). Cengage.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
Reading the MT 217 Unit 9 instructions
Unit 9 of MT 217 centers on a seminar, frequently about the cost of capital and how a company's mix of debt and equity affects it. Most prompts want your understanding before the session, the figures or ideas the discussion added, what changed in your thinking and at least one source applied to the case. Use the session's numbers, since a reflection anchored in figures shows the change more clearly than one that describes it. Report specific contributions from classmates or the instructor. If you completed a written alternative instead of attending, respond to its questions with the same structure. Close with what you now believe and a question for the next unit. Keep the tone analytical even though the voice is first person. Expect about two pages, with sources such as Myers cited in APA 7.
Inside the MT217 Unit 9 example
Its first paragraph sets down the conviction that borrowing to the lender's limit gives the lowest cost. The seminar's figures follow: the distributor's after-tax debt cost, its equity cost from the pricing model and the writer's fixed-cost calculation that kept falling, plus a note about showing it to a manager at work. The turning point is a classmate's account of how her bank would raise rates and add covenants at higher debt, and a margin note marks it. The instructor's rerun with responsive costs produces a curve that flattens and climbs, and the highlighted line states the paradox that debt stayed cheaper while the blend got dearer. Myers's two views of capital structure and Graham and Harvey's survey connect the curve to practice, and Brigham and Houston place the minimum near 40 to 45 percent debt. A second note explains what the first calculation assumed away, and a recommendation and question close.
MT217 Unit 9 rubric: what earns full points
An MT 217 reflection is usually marked on how clearly the writer's understanding changed and how well the change is supported. Stating the earlier belief plainly, and showing the calculation that seemed to confirm it, sets up the change. The middle should name what moved the writer, here a lender's account of rising rates and the instructor's revised figures. Graders reward reflections that explain why the first answer was wrong, not just that it was. Sources should connect the change to theory and practice, as the trade-off view and the survey of finance officers do here. Figures should be accurate and consistent with the course's methods. A closing recommendation applied to the case, and a question that carries the thinking forward, show the reflection has consequences. First person is expected, but claims still need evidence. Myers, Graham and Harvey and the course text should be cited correctly.
Common MT217 Unit 9 mistakes, and how to avoid them
Cost of capital reflections often fall short by summarizing the formula without describing any change in thinking. Another common problem is reporting the seminar's final answer without the first, mistaken one, which hides what was learned. Some writers say the session was eye-opening without naming a figure or a comment that changed their view. Others apply the weighted average formula correctly but never explain why the costs of debt and equity rise with borrowing. Theory such as the trade-off view is sometimes named but not connected to the case. Watch the arithmetic, since a reflection anchored in numbers loses credibility if the numbers are wrong. If you completed the written alternative, use its figures the same way. Tell us what your seminar covered and what you believed going in, and our writers can help shape an accurate account of the change.
Get an MT217 Unit 9 example written to your instructions
Give a short account of the Unit 9 seminar, or attach the written-alternative prompt set for missed sessions, plus the rubric. Working from that session's figures, the reflection shows what shifted in your view of what debt and equity cost, and links it forward to capital budgeting. No fee applies to an opening sample, typically within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT217 Unit 9 questions, answered
Why does the cost of equity rise with more debt?
Because owners are paid after lenders, so every extra dollar of debt makes what is left for owners less certain. They respond by requiring a higher return. Lenders do the same once debt grows large, charging more to lend. The sample's session showed both effects, which is why the blended rate stopped falling around 45 percent debt.
Is 45 percent debt the right answer for every company?
No. The low point depends on the business's stability, its tax position and how lenders view its assets. A utility with steady revenue can carry far more debt than a software start-up. The figures in the sample belong to one composite distributor and illustrate the shape of the curve rather than a target any firm should adopt.
What if I attended the seminar live?
Then the reflection draws on what was said and worked in the session, as the sample does, quoting a moment or a calculation. Students who complete the written alternative instead usually respond to the same material in writing. Either way, the reflection needs specific figures or remarks from the content and a clear account of what changed in your thinking.
Where can I find a free MT217 Unit 9 sample paper?
A complete MT217 Unit 9 seminar reflection is shown on this page. It reworks a flooring distributor's cost of capital at three debt levels, explains why the blended rate turns upward drawing on three published sources, and margin notes mark the turning points.
Why did the blended rate rise at 60 percent debt in the sample?
Because lenders and shareholders both demanded more as debt grew. Borrowing rose to 9.2 percent and equity to 15.2 percent, and those increases outweighed the tax advantage of the extra debt.