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Consider a weighted average cost of capital (WACC) for a firm with both debt and equity. Suppose the firm's equity is riskier than the market,
Consider a weighted average cost of capital (WACC) for a firm with both debt and equity. Suppose the firm's equity is riskier than the market, what would happen to WACC if the risk-free rate goes up (but everything else stays the same)? Will WACC also go up or will it go down? Why? (Hint: you can construct a simple example and explore how the changes in risk free rate affect WACC at different levels to support your answer)
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