Continued Intuition: /Proposition I:Through homemade leverage, Individuals can either duplicate or undo the effects of corporate leverage. Proposition II:The cost of equity rises with leverage,because the risk to equity rises with the leverage. Cost of equity (kL)increases to exactly offset the benefits of more debt financing kd )leaving the cost of capital ka)constant see model 1 剥外校价贫多方号 YO年NEB证事0000Continued o Intuition: 9Proposition I: Through homemade leverage, Individuals can either duplicate or undo the effects of corporate leverage. 9Proposition II: The cost of equity rises with leverage, because the risk to equity rises with the leverage. 9Cost of equity (keL) increases to exactly offset the benefits of more debt financing ( k d ), leaving the cost of capital ( k a ) constant see model 1