Which of the following attributes would most likely lead to firms having higher WACC, holding all...
Which of the following attributes would most likely lead to firms having higher WACC, holding all else constant?
i) good credit and lower interest charges
ii) higher equity market risk premium
iii) higher beta
iv) lower leverage
A. ii and iii
B. ii, iii, and iv
C. i, iii, iv
D. all of the above
Homework Answers
WACC = Cost of Debt*Weight of Debt + Cost of Equity*Weight of Equity
i)good credit and lower interest charges would reduce cost of debt and hence, WACC
Higher Risk Premium and Higher Beta will lead to higher equity cost of capital and hence higher WACC
Lower leverage will lead to higher WACC
Hence, the answer is B. ii, iii, and iv
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